IRS Tax Exempt Requirements & Procedures

Being IRS tax exempt means that you do not have to pay taxes. Certain organizations or individuals can claim tax exempt status. These entities have to meet specific guidelines in order to qualify for the program. Therefore, only a select few can ever be tax exempt. Here are the basics of tax exempt status and the procedures to become tax exempt.

Who is Exempt?

Under Section 501(c) of the Internal Revenue Code lists out the different organizations that can claim tax exempt status. Gaining tax exempt status for these groups can be a huge benefit for them financially because it can help them keep money to keep their businesses running smoothly. There are 28 different groups that could be considered tax exempt. The most popular entities that are in this tax exempt group are:

  • Churches
  • Schools
  • Charitable organizations
  • Government agencies

How to Gain Status

You are not automatically granted a tax exempt status. Every entity must file Form 990 annually, when they file their tax returns. This allows them to retain their tax exempt status. In addition to filing the correct forms, they also have to keep a detailed record of their financial dealings. Even though they do not pay taxes on the money that they bring in, they still have to file a tax return. This allows the IRS to keep tabs on their financial dealings even though they do not have to pay the IRS anything. 

Tax Deductibles

One benefit that tax exempt organizations have is that they can encourage others to donate money to them thanks to special tax breaks. This really can have a profound effect on people because if they do not donate the money, it will usually be paid to the government in taxes. Therefore, there is sometimes no reason for them not to make a donation. 

However, not every organization that is tax exempt will result in a tax deduction for you if you donate money to them. The organizations have to fit under the umbrella of the 501(c) 3 designation if donors want to get some type of tax deduction on their donation funds. Churches, charities and schools are usually the most common participants in this designation. To find a complete list, go to the IRS website online and look up the company.