Applying for tax exemption in the United States happens at up to three separate places: the IRS handles federal income tax exemption, your state’s revenue agency handles state income and sales tax exemption, and your county or municipal tax assessor handles property tax exemption. Each is a distinct application with its own agency, form, and fee. Before any of them, though, your organization has to legally exist under state law, which means filing incorporation paperwork with your Secretary of State.
Incorporate With Your State First
Federal law governs tax-exempt status, but state law governs whether your nonprofit exists at all, and the IRS expects your organizational documents in hand before you apply.1Internal Revenue Service. Before Applying for Tax-Exempt Status You file articles of incorporation (or a trust document or articles of association) with the Secretary of State’s office. Filing fees generally fall in the $35 to $75 range.
The articles need specific language to qualify for federal exemption later. For a 501(c)(3), the purpose clause must limit activities to charitable, religious, educational, or similar exempt purposes, and there must be a dissolution clause directing assets to another exempt organization if yours closes. The IRS reads these documents closely and rejects applications where the purpose is too broad or the dissolution provision is missing.
You’ll also draft bylaws covering how the board is elected, how meetings run, and how conflicts of interest get handled. Bylaws usually aren’t filed with the state, but the IRS wants to see them as part of the federal application.
Apply to the IRS for Federal Tax Exemption
Federal exemption is granted under 26 U.S.C. ยง 501(c), which lists roughly 30 categories of qualifying organizations.2Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc. The most common is 501(c)(3), for charitable, religious, educational, or scientific purposes. Civic leagues and social welfare groups fall under 501(c)(4); labor and agricultural organizations under 501(c)(5); business leagues and trade associations under 501(c)(6).
Which form you file depends on your organization type:
- Form 1023 is the full application for 501(c)(3) recognition. It requires a narrative of your activities, three years of financial projections, compensation information for officers and directors, and copies of your organizational documents.3Internal Revenue Service. Instructions for Form 1023 (Rev. December 2024)
- Form 1023-EZ is the streamlined version for smaller 501(c)(3) organizations. You qualify only if gross receipts haven’t exceeded $50,000 in any of the past three years, you project they won’t exceed $50,000 in any of the next three, and total assets are worth $250,000 or less.4Internal Revenue Service. Instructions for Form 1023-EZ
- Form 1024-A is used by 501(c)(4) social welfare organizations.5Internal Revenue Service. About Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4) of the Internal Revenue Code
- Form 1024 is used by other exempt types, including social clubs under 501(c)(7) and fraternal beneficiary societies under 501(c)(8).
All of these applications are submitted electronically through Pay.gov. Before filing, you need an Employer Identification Number, obtained by submitting Form SS-4 to the IRS; the online application returns the nine-digit number immediately.6Internal Revenue Service. About Form SS-4, Application for Employer Identification Number (EIN)
The user fee is $600 for Form 1023 and $275 for Form 1023-EZ, paid at the time of filing by bank transfer or credit card.7Internal Revenue Service. Form 1023 and 1023-EZ: Amount of User Fee The IRS will not process the application without payment.
The 27-Month Deadline
File within 27 months of the end of the month your organization was formed and the IRS can recognize your exempt status retroactively to the date of formation.8Internal Revenue Service. Form 1023: Purpose of Questions About Organization Applying More Than 27 Months After Date of Formation Miss that window and exemption may only be recognized from the date you actually filed, meaning income during the gap could be taxable. Organizations that operated informally before incorporating often trip on this.
Processing Times
Form 1023-EZ applications move fast. The IRS issues 80% of those determinations within about 22 days. Full Form 1023 applications take considerably longer; the IRS reports issuing 80% of determinations within 191 days.9Internal Revenue Service. Where’s My Application for Tax-Exempt Status Applications that raise questions take longer still. Once approved, you receive a determination letter. Keep it permanently. Donors, grant-makers, state agencies, and banks will ask for it.
If the IRS Denies You
A denial starts as a proposed adverse determination. You have 30 days from the date of that letter to file a written protest with the IRS office that reviewed your application.10Internal Revenue Service. 11Office of the Law Revision Counsel. 26 USC 508 – Special Rules With Respect to Section 501(c)(3) Organizations The same exception applies to non-private-foundation organizations whose gross receipts are normally $5,000 or less per year. Either can still choose to apply if a formal determination letter would help with donors or banks, but the law doesn’t require it.
If you’re a national or regional body with local chapters, look at a group exemption instead of separate applications. The central organization needs at least five subordinates, all under the same paragraph of 501(c), and takes responsibility for annually reviewing each subordinate’s finances and activities.12Internal Revenue Service. Rulings and Determination Letters It saves significant time and fees compared with each chapter applying individually.
Apply to Your State for Income and Sales Tax Exemption
Federal recognition doesn’t automatically exempt you from state taxes. The agency that handles state tax exemption is typically called the Department of Revenue, Comptroller’s Office, or Franchise Tax Board, depending on where you’re located. Some states grant income tax exemption automatically to any organization holding a federal 501(c)(3) determination letter. Others require a separate state application with its own forms and fees.
Sales tax exemption is almost always a second, separate process from income tax exemption, even within the same state. You apply for a sales tax exemption certificate and present it at the point of purchase. The exemption typically covers only purchases for your own exempt purposes, such as office supplies for the charity’s work, not items bought for resale at a fundraiser. Eligible purchase categories vary significantly by state.
Apply to Your County or City for Property Tax Exemption
If your organization owns real estate, property tax is likely your biggest recurring local obligation. Property taxes fund schools, fire departments, and infrastructure, and they’re administered by a county or municipal tax assessor. Exemption requires a separate application proving the property is used primarily for exempt purposes, such as running a food bank out of the building rather than renting it to commercial tenants.
These filings are independent of your federal and state applications. The assessor’s office typically wants your IRS determination letter, a description of how the property is used, and sometimes proof that no part of the property generates private income. Many jurisdictions require periodic reapplication or at least a certification that nothing has changed. If you start using part of an exempt property for non-exempt purposes, the assessor can revoke the exemption on a pro-rata basis for that portion.
Register With the State Before Soliciting Donations
Roughly 40 states require charitable organizations to register with a state agency before soliciting donations from that state’s residents.13Internal Revenue Service. Charitable Solicitation – Initial State Registration This is separate from state tax exemption and separate from your incorporation. Run an online fundraiser that reaches donors in multiple states and you could technically need to register in every state where donations come from.
Fees range from nothing in some states to several hundred dollars in others, and often scale with revenue. Some states exempt certain categories, such as churches, small organizations, or educational institutions, but the specific exemptions vary. Failing to register before you start fundraising can result in fines or an order to stop soliciting until you comply.
After Approval, Keep Filing
Approval isn’t permanent on its own. Most exempt organizations must file an annual information return with the IRS: Form 990-N for the smallest organizations, Form 990-EZ or Form 990 for mid-size and larger ones, and Form 990-PF for all private foundations.14Internal Revenue Service. Instructions for Form 990 Return of Organization Exempt From Income Tax Miss the annual filing three years in a row and the IRS automatically revokes your exempt status by operation of law, with no warning letter and no grace period.15Office of the Law Revision Counsel. 26 USC 6033 – Returns by Exempt Organizations Reinstatement is possible but requires filing a new exemption application with the user fee attached; act within 15 months and show reasonable cause and the IRS may reinstate you retroactively.16Internal Revenue Service. Automatic Revocation – How to Have Your Tax-Exempt Status Reinstated The state and local exemptions you worked for typically ride on your federal status, so losing federal exemption tends to unwind the rest.