Step 2: File for federal tax exempt status... complete!

Just a piece of paper, but… !

We filed our paperwork today with the IRS to be recognized as a tax exempt 501(c)(3) nonprofit organization.

It sounds simple, and in the end it was.

But the journey here took us up and down many hills as well as through many lawyerly conversations. It’s been a fascinating, fruitful, creative and introspective time. I’m longing to write all that up… I’m going to do so, actually, but I’ll be posting it in my Patreon account rather than littering the Foundation’s blog with my every passing thought.

Next: IRS determination letter

We are expecting to be a very lean organization, focused on finding the most efficient ways to facilitate getting good and effective and meaningful things done through mostly volunteer labor - as opposed to funding, staffing and building an organization to administer. No interest here in creating monuments to ourselves.

That being the case, and with a small budget in mind, we were eligible to file a 1023-EZ - the IRS’s smallest form for the purpose. It normally has a relatively quick turnaround time, but that pesky little government shutdown is going to set things back a bit. At this point, though, we’re still plenty hopeful that the magic determination letter will be here by, say, the end of March.

For those of you who are literate in nonprofit tax forms, you might be interested to know that we went through the exercise of completing the full 1023 form first, with extensive legal advice, to assure ourselves of our compliance, before opting for the simpler form to speed up the process.

And after that

Filing with our state (Washington). Then we’re mostly all done, although… since we like to be super-duper compliant and overdo everything, we will also be registering as a fundraiser in certain states that require it, despite our legal team’s snickering and muttering about overkill.

What’s the point of all this paperwork?

There are many implications of becoming a tax exempt 501(c)(3) organization.

Tax implications

The most important one of those is simply not having to pay tax on income related to our “exempt purposes". That empowers us to put 100% of your donation dollars, or any grants we might be awarded, straight to work rather than handing a chunk over to the IRS.

Then there is the question of whether your donations are tax deductible for purposes of YOUR tax return. However… that aspect is probably much less pertinent today since the Tax Cut and Jobs Act of 2017 raised the standard deduction (meaning fewer people will benefit from itemizing their deductions). In fact, we should be so lucky as to have any donors in a position to care about the deductibility of their donations :)

Then there is, yet again, paperwork. As a 501(c)(3), we’ll be filing an annual 990 (or 990-EZ as the case may be) as opposed to, say, an 1120 return for a normal corporation. Details, details.

Grants

There is something magical about that 501(c)(3) that opens all kinds of doors. The one we’re most interested in is being able to apply for certain types of grants. We have some research projects and community projects in mind where grant funding may come in very, very handy. Thankfully our very own treasurer, Roz, is a grant expert…. Roz administered a private foundation for decades, and has been extremely active in the local nonprofit sector, including grant evaluations on behalf of local foundations, for years.