FAQ's
Why should I use James Chestnut & Associates to assist me in obtaining 501c3 tax-exempt status? James Chestnut and Associates are experts in the field of nonprofit and tax-exempt organizations and specialize in helping its clients obtain their 501c3 tax-exempt status. With over 26 years of experience we will work with you to bring your operations into compliance with federal guidelines concerning exempt organizations, and we confident that, within the parameters of federal guidelines, we can get your application approved. We enjoy the work that the Lord has entrusted to us. We care about you and we want our relationship to be beneficial to your organization. We go to great efforts to make sure our services are affordable to organizations of all sizes by accepting a minimum down payment to begin your work. Need more information? Please email us at support@jameschestnut.com to ask a Nonprofit specialist.
How do I contact James Chestnut & Associates? Address: James Chestnut & Associates, Inc 15334 Teal Park Drive Humble, TX 77396 * Please be sure to include your organizations name on all correspondence. Email: Need more information? Please email us at support@jameschestnut.com to ask a Nonprofit specialist. Contact Info: Telephone: (281) 441-4431 Fax: (281) 441-4927 Hours of Operation: Our normal business operating hours are Monday through Friday, 8:00am to 5:00pm Central Time.
Who can form a nonprofit corporation? Most states require a minimum of three directors to complete the articles of incorporation and pay the state filing fee to form a nonprofit corporation. Some states require directors to be at least 18 years of age. Call us to see if there is an age restriction in your state.
When do I get my Tax ID number? Once your articles have been filed by the Secretary of State, we can help you obtain your Tax ID number. If you need your Tax ID number before we have received the filing back from the Secretary of State, please contact us.
How do I check the status of my order? Please email support@jameschestnut.com and one of our support team members will get back to you within 48 business hours.
Is there one tax ID for both federal and state taxes? For most states, you may need to get a State Tax ID in addition to your Federal EIN. Your Federal Tax Identification Number or “EIN” is the unique number the IRS assigns to your business. An EIN may also be referred to as a Federal Tax Identification Number, Tax ID, or Federal Tax ID. In addition to your Federal Tax ID, your new corporation will be assigned a Charter Number (sometimes called Registration Number) and a State Tax ID Number (sometimes called a State Employer ID or Taxpayer Number) which is different from the Federal EIN.
Can I start receiving contributions before my 501c3 is approved? Generally, yes. While an organization’s exemption application is waiting for approval from the IRS, the organization may operate as a tax-exempt organization. If an annual exempt organization return is due, the organization must file it, indicating that its application is pending. Although donors have no assurance that contributions are tax-deductible for federal income tax purposes until the application is approved, contributions made while an application is pending would qualify if the application is approved. However, if the application is disallowed, contributions would not qualify.
What information will be required on IRS Form 1023? In order for the IRS to make a determination, specific questions must be answered relative to the organization’s legal structure, its governing board, and potential conflicts of interest. More importantly, pages of detailed questions concerning the organization’s activities must be answered. This is in addition to a two-year budget (new organizations) or three years of financial history (existing organizations) and a written narrative essay outlining the organization’s programs, both current and planned, that will advance the organization’s exempt purpose. Add to that copies of supporting schedules and documentation and you have a basic application package.
What activities can jeopardize tax-exempt status? For 501c3s, the four main activities that can jeopardize the organization’s tax-exempt status are: 1. Activity that results in private benefit or inurement 2. Lobbying activity, if it constitutes a substantial part of the organization’s overall activities or if it exceeds a predetermined dollar amount 3. Any political campaign activity 4. Unrelated business activity that is substantial when compared with the organization’s exempt-function activities
Is there a state application for 501c3 as well as federal? The answer depends on the state in question. In most states the answer is no. A handful of states have a simple, one- or two-page form that must be prepared. At this time, California is the only state that requires a separate application process whose length and detail rivals the IRS application process. In California, federal tax-exemption does not eliminate state income tax liability until approval is received from the California Franchise Tax Board. We can also assist you with a California filing if you wish.
What is the difference between a public charity and a private foundation? All 501c3 organizations have what is called a “foundation classification.” The terms “public charity” and “private foundation” are ways of referring to an organization’s foundation classification. Because of the way the law is written, any organization that qualifies for tax-exempt status under section 501c3 is presumed to be a private foundation, unless it can show that it qualifies for one of the exceptions to private foundation status. Any organization qualifying for such an exception is sometimes called a public charity. Some types of organizations, such as churches and schools, are defined as public charities by law. But most organizations qualifying for public charity status do so because they can show that their financial support comes from a broad cross-section of the public. Organizations that receive their support from a very narrow base, or that were set up by a wealthy individual or family will typically be classified as private foundations. Although both types of organizations are tax-exempt under section 501c3, private foundations are subject to certain excise taxes and reporting requirements that do not apply to public charities.
What is an SCorp? A traditional corporation (or C-corporation), is taxed as a separate entity, which leads to double taxation of corporate income and dividends to shareholders. An S-corporation elects to be treated as a pass-through entity (such as a sole proprietorship or partnership) for tax purposes. This means S-corporations are not subject to double taxation. All corporate income is “passed through” directly to the shareholders who include the income on their individual tax returns. In general, the accounting for an S-corporation is easier than for a C-corporation. There are, however, certain restrictions on S-corporations: An S-corporation must not have more than 100 stockholders, and each of them must consent. (A married couple is treated as one stockholder.) Each stockholder must be an individual who is a citizen or resident of the United States, or an estate or qualifying trust of such person. The corporation can have only one class of stock. (However, voting differences within a class of stock are permissible.) Preferred stock is not allowed. The corporation must use the calendar year as its fiscal year unless it can demonstrate to the IRS that another fiscal year satisfies a business purpose. Corporations wishing to become an S-corporation must file Form 2553 with the IRS. Each corporate stockholder must sign the form, which we can prepare for you.
If my nonprofit is tax-exempt do I have to pay any type of taxes? Possibly. Private foundations may still be subject to taxes on investment earnings and undistributed minimum grant allocations. All 501c3 organizations may be subject to taxes on “unrelated business income.” 501c3 organizations that have employees are generally subject to federal and state employment taxes. Additionally, some states do not exempt 501c3 organizations from sales and/or property taxes. It is important for the organization to know what is required in its state and locality. Need more information? Please email us at support@jameschestnut.com to ask a Nonprofit specialist.
Why apply for 501c3 status? The benefits of having 501c3 status include exemption from federal income tax and eligibility to receive tax-deductible charitable contributions. To qualify for these benefits, organizations must file an application with, and be recognized by, the IRS. Another benefit is that some organizations may be exempt from certain employment taxes. Individual and corporate donors are more likely to support organizations with 501c3 status because their donations can be tax deductible. Recognition of exemption under section 501c3 of the IRC assures foundations and other grant-making institutions that they are issuing grants or sponsorships to permitted beneficiaries. An IRS determination of 501c3 status is often recognized and accepted for other purposes. For example: state officials may grant exemption from state income, sales, and property taxes; and the U.S. Postal Service offers reduced postal rates to certain organizations. If you have any questions or concerns, please don’t hesitate to contact us.
Is an IRS exemption application subject to public disclosure? An exemption application is subject to public disclosure once it has been finally approved or denied.
What if I feel that it is taking too long? The IRS will notify you directly with any request for additional information or a ruling about your organization. For more information go to the IRS.gov website and search “Where Is My Exemption Application” to find out which applications are currently being assigned. You can contact the IRS directly by calling (800) 829-0115. Make sure you have your organizations legal name and Employer Identification Number (EIN) handy when you call. Just state that you want to check on the status of your Form 1023 application. The IRS agent will want to verify your identity and position within the organization and may even ask you for your social security number, so don’t be alarmed. Let him know that you are member of the Board of Directors and state your position (i.e. President, Secretary, or Treasurer).
What is a determination letter? The IRS tax specialist reviewing an application may request additional information in writing. If all information received establishes that an organization meets the requirements for exemption, the IRS will issue a determination letter recognizing the organization’s exempt status and providing its public charity classification. This is an important document that should be kept in the organization’s permanent records
What are my filing responsibilities with the IRS once I receive/apply for my tax-exempt status? An organization that normally has $50,000 or more in gross receipts must file an exempt organization information return Form 990, Return of Organization Exempt from Income Tax (a church is exempt from filing Form 990). This return is due on the 15th day of the 5th month after the end of the fiscal year. The due date may be extended for three months, without showing cause, by filing Form 8868 before the due date. An additional three-month extension may be requested on Form 8868 if the organization shows reasonable cause why the return cannot be filed by the extended due date.
Do I need an IRS or Federal tax-exempt number for my organization? No. Unlike some states that issue numbers to organizations to indicate that these organizations are exempt from state sales taxes, the IRS does not issue numbers specifically for exempt organizations. Federal tax-exempt numbers do not exist! While the Internal Revenue Service does issue Employer Identification Numbers (EINs), these are merely a unique identifier, similar to a Social Security number for an individual. Applying for and receiving an EIN says nothing about the organization’s tax status; however, your organization needs an EIN to apply for tax-exemption.
What is the difference between nonprofit and tax-exempt status? Nonprofit status is a state designation, and is a characteristic of how the legal entity has been formed. Nonprofit status may make an organization eligible for certain benefits, such as state sales, property, and income tax-exemptions. Federal tax-exempt status is granted solely by the Internal Revenue Service (IRS) after their review and approval of an extensive application (Form 1023). For organizations to be exempt from federal income tax, the 501c3, and for contributors to be able to claim income tax deductions for their contributions, the organization must obtain tax-exempt status from the IRS.
Who is eligible for 501c3 status? There are three key components for an organization to be exempt from federal income tax under section 501c3 of the IRC. A not-for-profit (i.e., nonprofit) organization must be organized and operated exclusively for one or more exempt purposes. Organized A 501c3 organization must be organized as a corporation, trust, or unincorporated association. An organization’s organizing documents (articles of incorporation, trust documents, articles of association) must: limit its purposes to those described in section 501c3 of the IRC; not expressly permit activities that do not further its exempt purpose(s), i.e., unrelated activities; and permanently dedicate its assets to exempt purposes. Operated Because a substantial portion of an organization’s activities must further its exempt purpose(s), certain other activities are prohibited or restricted including, but not limited to, the following activities. A 501c3 organization: Must absolutely refrain from participating in the political campaigns of candidates for local, state, or federal office Must restrict its lobbying activities to an insubstantial part of its total activities and must ensure that its earnings do not inure to the benefit of any private shareholder or individual Must not operate for the benefit of private interests such as those of its founder, the founder’s family, its shareholders or persons controlled by such interests and must not operate for the primary purpose of conducting a trade or business that is not related to its exempt purpose, such as a school’s operation of a factory May not have purposes or activities that are illegal or violate fundamental public policy Exempt purpose To be tax-exempt, an organization must have one or more exempt purposes, stated in its organizing document. Section 501c3 of the IRC lists the following exempt purposes: charitable, educational, religious, scientific, literary, fostering national or international sports competition, preventing cruelty to children or animals, and testing for public safety. The most common types of 501c3 organizations are charitable, educational, and religious. Charitable – Charitable organizations conduct activities that promote: Relief of the poor, the distressed, or the underprivileged Advancement of religion Advancement of education or science Erection or maintenance of public buildings, monuments, or works Lessening the burdens of government Lessening neighborhood tensions Eliminating prejudice and discrimination Defending human and civil rights secured by law Combating community deterioration and juvenile delinquency Educational organizations include: Schools such as a primary or secondary school, a college, or a professional or trade school Organizations that conduct public discussion groups, forums, panels, lectures, or similar programs Organizations that present a course of instruction by means of correspondence or through the use of television or radio Museums, zoos, planetariums, symphony orchestras, or similar organizations Nonprofit day-care centers, youth sports organizations Religious The term church includes synagogues, temples, mosques, and similar types of organizations. Although the IRC excludes these organizations from the requirement to file an application for exemption, many churches voluntarily file applications for exemption. Such recognition by the IRS assures church leaders, members, and contributors that the church is tax-exempt under section 501c3 of the IRC and qualifies for related tax benefits. Other religious organizations that do not carry out the functions of a church, such as mission organizations, speakers’ organizations, nondenominational ministries, ecumenical organizations, or faith-based social agencies may qualify for exemption.
How does an organization become tax-exempt? To be recognized as exempt from federal income taxation, most organizations are required to apply for recognition of exemption. For section 501c3 organizations, the law provides only limited exceptions to this requirement. Organizations that want to apply for 501c3 status should be aware of the forms required, the user fee, the filing deadline, and the processing procedures. Need assistance? Please email us at support@jameschestnut.com to be contacted by a Nonprofit specialist.
What if I’m contacted by the IRS? It is possible (and quite likely) that the IRS will have questions about your organization. Again, don’t be alarmed. It is helpful to remember that the job of the IRS is to collect revenue for the federal government. Don’t expect them to grant your organizations tax-exemption without fully satisfying themselves that your program(s) qualify. We are more than prepared to answer any question the IRS may have. Requests for additional information typically come via letter. Please do not communicate with Internal Revenue Agents by phone, but have the agent address his questions and concerns in writing. If you receive a letter requesting additional information or questions regarding your organization, please contact our office immediately and forward a copy of the letter to us. Please! Do not try and submit answers yourself. We will prepare a response to any IRS questions. We will have you to review it, sign it and send it to the IRS. When the IRS is satisfied, a final letter of determination of approval will be mailed to your organization.
Our tax-exempt status was automatically revoked. Can our 501(c)(3) status be reinstated? If your organization’s 501(c)(3) tax-exempt status has been automatically revoked, don’t worry it can be reinstated. Your organization must file a new Form 1023 application for exemption and pay the appropriate user fee. Certain formerly tax-exempt organizations may qualify for a reduced fee of $100 and retroactive reinstatement of exempt status, but only if you apply for reinstatement before December 31, 2012. If the IRS determines that your organization qualifies for reinstatement of its tax-exempt status, it will issue a new determination letter once again making it exempt from federal income tax under section 501(a) of the Internal Revenue Code as an exempt organization described in section 501(c)(3). This IRS video describes the reinstatement process, including a program to help small organizations regain their exempt status. https://www.youtube.com/watch?v=hdrI1Swt1eI Please email us at support@jameschestnut.com to ask a Tax-Exempt specialist.