IRS has just changed how a non-profit organization can gain their tax exempt status to make it easier and cheaper. This is a great news for us since this was one of the big challenges Clear Charity was facing. IRS allows a new nonprofit organization to be in ‘pending status’ for 27 months. And Clear Charity was not able to start the process right away due to high cost associated with application for tax exempt status.
If you ever look up information about forming a nonprofit organization, you’ll see hundreds of companies that solicit their service to help you file required paperwork for IRS. When I was first researching about forming a non-profit organization, I was shocked at how many companies solicit to help you to form a ‘non-profit’. And it was surprising to learn that forming a normal for-profit corporation would only cost about $500 in average, but forming a non-profit organization can cost upwards of $3,000~$4,000.
Forming a non-profit organization can cost upwards of $3,000~$4,000.
Surprised? me too. Unlike for-profit company, non-profit organization has much more complex paperwork requirement & fees associated with those paperwork are also surprisingly high. And because paperwork to file a tax exempted non-profit organization is so complex (it starts with 26 page IRS form), there are thousands of companies who will charge you anywhere from $800 ~ $3,500 to help you file it. On top of that, IRS charges $850 fee for processing 501(c)(3) form.
Unlike many foundations or organizations that are created by wealthy founder who creates a charity under their name, Clear Charity is created by average middle class American couple. And a portion of the savings used to start the organization isn’t enough to do everything at once. So when we got all the facts together, we had two choices.
1. Spend majority of funds to file required filing, and then try to raise money to help those in need
2. Help those in need first and worry about IRS filing when we can afford it.
Founder/President Dana did not hesitate to pick #2 as an option. So instead of spending little reserve Clear Charity had to start with on IRS filing, we have launched our first program ‘Backup Safetynet’.
Under new IRS rule, small nonprofit organizations like Clear Charity can now use 1023-EZ form which shrinks application from 26 pages to 3, and allow higher limitation to qualify for lower processing fee of $400. This makes a huge difference because 26 page application will likely require professional help which double ~ triple the total cost to get a tax exemption. We are now very hopeful that we can acquire official tax exempt status in the near future.
Thank you IRS! (Never thought I’d ever say that in my life)