IRS Tax-Deductibility

Are contributions to an organization that has not received an exemption determination letter deductible?
If an organization is exempt under section 501(c)(3) of the Internal Revenue Code, charitable contributions to it are deductible. To be exempt under section 501(c)(3), most organizations must file Form 1023 by the end of the 27th month after they were created. If an organization does so, charitable contributions to it will be deductible back to the date of formation. The extent to which donors may be assured that their contributions will be deductible in advance, however, will depend on whether the organization has—

  • 1.  Timely filed Form 1023 , Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, but not yet received a letter recognizing its exempt status,

Contributions to Organization with IRS Application Pending 

When the IRS approves a timely filed exemption application, exempt status is recognized back to the date the organization was created. Thus, while an application is pending, the organization can treat itself as exempt from federal income tax under section 501(c)(3). For example, it must file Form 990 (instead of an income tax return) while its application is pending. However, contributors to the organization do not have advance assurance of deductibility because the organization’s exemption is pending. If the organization ultimately qualifies for exemption for the period in which the contribution is made, the contribution will be tax-deductible by the donor. Alternatively, if the organization ultimately does not qualify for exemption, then the contribution will not be tax deductible.

  • 2.  Filed Form 1023 later than the prescribed time

Application Filed Late

An organization that files an application after this deadline may be recognized as tax-exempt from the date of the application; it may also request exemption effective back to the date of creation. A request will be approved if the organization acted reasonably and in good faith, and granting relief will not prejudice the interests of the government. For more information on the criteria for relief, see Income Tax Regulation 301.9100-1.

or

  • 3.  Not filed Form 1023.

Organization Did Not File Form 1023

Federal tax law generally requires that an organization timely file Form 1023, before it can qualify for exemption from federal income tax as a section 501(c)(3) charitable organization, or receive deductible charitable contributions. Therefore, contributions to an organization that has not filed Form 1023 are not deductible. Churches and small organizations may receive tax deductible contributions even though they have not filed Form 1023, however see further below.

Organizations Not Required to File Form 1023

Churches and organizations with annual gross receipts normally less than $5,000 are not required to file Form 1023 and obtain recognition of tax exemption for contributors’ contributions to them to be tax deductible. Although there is no requirement to do so, many churches and small organizations seek IRS recognition because recognition assures contributors that contributions are deductible. Otherwise, there is no assurance that donations will be tax deductible. For more information, see Publication 1828, Tax Guide for Churches and Religious Organizations, and Public Charity – Exemption Application.

Two caveats here: Not all churches will be recognized by the IRS as churches. Please see What is a Church? Also, just because the organization is small (annual gross receipts normally less than $5,000) does not mean it is tax-exempt. In both these cases, to assure your donors that their donations will not be disallowed by the IRS, it is preferable to have 501(c)(3) status.

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