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Understanding tax exempt organizations

There are rules to be followed by citizens in any society. To help things run smoothly, rules have been set to benefit a community as a whole.

Others help us learn and abide by these rules as individuals and as we grow. In our young age, we were taught that we are to pay for a chocolate bar we want in a candy store. That we cannot just take what we want when there is a tag price attached to it. We know that at the age of 18 we can register and vote. And we’ve learned that come April, we need to fill out those agonizing forms. But we also know where we can go for help if doing it for the first time. Terms such as “total taxable income” and “earned income” can be perplexing for a first timer.


These two terms are not the same. But are related. Many non-profit organizations long to be tax exempt and this sometimes causes confusion when referring to the 2 terms being talked described here. Charitable organizations more often than not, described as  nonprofit organizations and therefore are tax exempted and this is recognized by the federal government. There are processes in becoming non-profit or tax-exempt.  This are done at different times and by different government agencies. Generally, by applying for the status, an organization can become tax-exempt but this entails a long process. There is approximately 30 pages to application form (Form 1023 for 501(c)(3) organizations; Form 1024 for others) is approximately 30 pages, and the IRS suggests that it (1023) to begin with and this can take about eight hours to completed. A status is granted after several months.

Once status has been granted. A “letter of determination” is sent by the IRS. This letter can now be used by your organization as proof of your tax-exempt status on a permanent basis. The letters will come of use when he need arises to show foundations during application for grant. It can also be used whe applying for state tax-exemption.

There are 2 additional ways of securing tax-exempt status. They are: automatic recognition and a fiscal conduit.


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