How Much Does the 501(c)(3) Application Process Cost in 2021?
Setting up a nonprofit organization is an exciting venture. There are many bases to cover and many things to take care of, especially in the beginning. There are only a few costs associated with getting a nonprofit up and running. That said, there’s one important cost that founding boards need to prepare for — the 501(c)(3) application fee.
When you’re first getting started, most likely your nonprofit will have little or no money. You may not have any donors, and if you do, they may not want their funds to be allocated to administrative costs.
How much is a 501(c)(3) fee? To answer that question and ease your path, we’re providing a guide for everything you need to know about the cost of a 501(c)(3) application.
Getting Acquainted with 501(c)(3) Application Forms
As a new board, you’ll need to get acquainted with the two different types of IRS forms and determine which one is right for your nonprofit. Each form has different qualifications and different costs. Let’s sort out the details.
IRS Form 1023-EZ
IRS Form 1023-EZ is a shorter form than IRS Form 1023. The 501(c)(3) filing fee also costs less at $275 (as of 2021). Here are the criteria for a 1023-EZ tax exemption form:
- Your organization is other than a church, school, hospital, foreign organization, or medical research organization.
- Your total projected revenue must be less than $50,000 in any of the next 3 years.
- Actual gross receipts must not exceed $50,000 in any of the past 3 years.
- Your total assets aren’t over $250,000.
- Your organization hasn’t requested classification as a supporting organization or a private operating foundation.
- Your organization doesn’t maintain any donor-advised funds and doesn’t plan to.
The IRS claims that it will take you less than 20 hours to prepare the form. As long as your organization qualifies and you pay the proper fee, your application should be approved. It could take from 2-4 weeks to get a reply.
IRS Form 1023
IRS Form 1023 is a much longer, more involved application form. Be aware that the form could take more than 100 hours to complete. The entire packet is between 50-100 pages long. The fee is $600 (as of 2021) regardless of what income your organization projects. Be sure that your paperwork is filled out correctly, as the fee is nonrefundable.
If you’re hoping to find a 501(c)(3) fee waiver, don’t waste your time. There isn’t one.
Finding Help for Filing Form 1023
It’s not surprising that your board might feel overwhelmed at the thought of filling out numerous pages of Form 1023. It’s something your board can do on its own. Be advised that there’s help out there in getting it done.
Let’s look at your options.
Filling Out Form 1023 on Your Own
When it comes to filling out Form 1023, be patient with yourselves. Nobody does it all in one sitting. Unless you have experience in filling out the form, you will probably need to spend some time doing research. That will add to the many hours in completing the application. To be sure that your application is correct and complete, you may ask a professional or another board member of a nonprofit that’s familiar with it to look it over. The good news is that there are no extra costs if you do it yourself without a professional.
CPAs and attorneys that specialize in nonprofit organizations can be of great assistance in preparing Form 1023. They are a great resource to have your questions answered and give you the reassurance that everything is on track. Be aware that they usually charge a fee and be sure to ask what it is upfront.
If you search online, you’ll be able to find templates and template-based services. These companies charge a fee, but it will be far less than what an attorney or CPA charges. Bear in mind that such companies aren’t consultants, and they typically won’t help you with questions from the IRS or a nonapproved application.
Getting Your Founding Documents in Order
Form 1023 is just part of the process of becoming a 501(c)(3) organization. There are several other steps you have to take. All of them take a bit of time, but you won’t have to worry about any extra costs.
Here’s what you need to do:
- Write and approve your Articles of Incorporation. Be sure that your stated purpose and mission meet the qualifications for a tax-exempt organization. Your Articles of Incorporation must also include rules for dissolution. Without purpose and dissolution statements, you won’t receive approval.
- Your bylaws are your nonprofit’s governing documents. They’re also required for filing federal tax-exempt status.
- Register for your Employee Identification Number, which is also called your Federal Tax Identification Number, if you need one.
- Review your Form 1023-EZ or Form 1023 to be sure it’s accurate and complete. Be sure to attach all schedules, financial projections, and attachments.
While you’re waiting for your determination letter, continue having board meetings, start raising funds, and do some strategic planning.
Finally, your board should consider the benefits of setting up a board management system. BoardEffect supports your development cycle, annual cycle, and meeting cycle. As you begin having meetings, your board will need to document everything you do and store all your documents. The best way to do that is to store them securely in the cloud. Your board management system allows you to create your board meeting handbooks completely online. Also, your board can communicate and share a calendar within the security of the portal. BoardEffect’s portal offers granular permissions so only your board can access information. In addition to being accessible and convenient, your portal will help you reduce governance and security risks.
This should answer the question, “How much does it cost to file for a 501(c)(3) status?” Hopefully, you feel better prepared to fill out and submit your Form 1023-EZ or Form 1023 and you’re also prepared to submit the proper fees.
