Many of the real benefits of forming a nonprofit come from a 501(c)(3) status, but simply incorporating
your business as a nonprofit does not guarantee its tax-exempt status. For a non-profit to become tax-exempt, it must file for it and be approved by the IRS.
Once incorporated, a business must file a Form 1023, which runs about 30 pages long. The IRS estimates a nonprofit will spend more than 100 hours completing it. After it is filed, the IRS can take up to a year to approve the application, depending on if the agency has questions and how quickly a nonprofit follows up.
A fee is required to file a Form 1023. The standard fee is $750, although some nonprofits may qualify for a reduced fee of $350.
After you have filed and the IRS has reviewed an application, it will either grant your federal tax exemption status, request more information regarding a business or will deny the tax exemption.
Although few states require it, some do have their own tax exempt form. While most are only a page or two long, filing for tax exemption in California is an even longer process than filing with the IRS.
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