Non-profit donations before non-profit status

Q. Can a nonprofit corporation issue tax-deductible receipts while waiting for approval of 501(c)3 status from the IRS? Would the deduction be only for the state in which the nonprofit is located and not for a federal return?

A. Non-profits fulfill a great need in our society. Thankfully, the IRS still considers donations to qualified non-profits to be tax deductible within certain limits. There are certain types of non-profits that do not need to go through the official recognition process with IRS Form 1023.

• Churches, including synagogues temples, and mosques.
• Integrated auxiliaries of churches and conventions or associations of churches.
• Any organization that has gross receipts in each taxable year of normally not more than $5,000.

Regardless, it’s still recommended to get the official blessing of the IRS on your organization.

If your organization does not fall into one of those categories, it is not an official non-profit in the eyes of the IRS or your state (most likely) until Form 1023 is filed and you receive your official acceptance letter.  Donations made to the organization prior to the official designation are likely not deductible.  Even if you are accepted at the federal level, it’s a good idea to look into the requirements of registering your non-profit organization at the state level.  If there are extra steps required to provide non-profit status at y0ur state level, it would be a shame to ignore them and cause confusion amongst your donors.  They want to help fulfill your mission, so make sure you have completed all necessary steps to provide the tax benefit available from the IRS.

Unfortunately, the process of completing the form is onerous. There is a 38-page instruction booklet to mull over for requirements. The application form itself is 30 pages!  There is also a new fee structure.  Just to apply, get ready to hand over at least $400.  According to the application,

The entire process can even take up to a year.  For those with more complicated organizations, an attorney may be necessary to insure that the purpose and structure are properly communicated to the IRS.

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Samuel Kerch, CPA

Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any matters addressed herein.Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any matters addressed herein.