Securing IRS Recognition & Tax Exempt Status

As previously mentioned, Perliski Law Group provides legal services needed to form nonprofits, specifically:

• 501(c)(3): private charities & public organizations
• 501(c)(4): civic leagues
• 501(c)(5): labor unions
• 501(c)(6): trade associations & professional societies
• 501(c)(7): social clubs

Starting a Nonprofit? Contact us today for legal assistance with formation and tax-exempt status. Call (214) 865-7542 to get started with a nonprofit lawyer near you!

Dallas Nonprofit Formation: IRS Recognition & Tax Exemptions

Once the organization is formed, the next step will be to file your applications for federal and state tax exemptions. As a nonprofit, IRS recognition and tax exempt status are the most favored aspects of nonprofit corporations. 

Exemption from federal and state tax requirements is a status held by a very small, strictly defined sector of enterprise—specifically, nonprofit organizations that have met and fulfilled all requirements for achieving such status. 

The principle behind this privilege is that the government has deemed these organizations to operate for the public interest, not the private interest of the owners.

• Related:  Maintaining Your Nonprofit's Tax-Exempt Status

Understanding the Different 501(c) Classifications

Nonprofits can qualify for tax-exempt status under various 501(c) classifications, each with specific purposes and rules.

Here’s a quick look at some additional 501(c) categories beyond the commonly known 501(c)(3) charitable organizations:

• 501(c)(8) & 501(c)(10): Fraternal Organizations – Groups that provide member benefits or support charitable causes.
• 501(c)(19): Veterans’ Organizations – Groups serving veterans, often providing services and advocacy.
• 501(c)(13): Cemetery Companies – Nonprofits that maintain cemeteries for the benefit of the public.

Public Charity vs. Private Foundation

• Public Charities – Receive broad public support and typically engage in direct charitable activities (e.g., food banks, churches, schools).
• Private Foundations – Often funded by a small number of donors, focusing on grant-making rather than direct services.
• Key Difference: Public charities have fewer restrictions on fundraising, while private foundations must meet specific distribution requirements.

Step-by-Step Guide to Forming a Nonprofit in Texas

Starting a nonprofit in Texas involves several steps to ensure compliance with state and federal laws.

• Choose a Name – It must be unique and meet state naming rules.
• File a Certificate of Formation – Submit this document to the Texas Secretary of State.
• Draft Bylaws – Create a governing document outlining leadership structure and operations.
• Obtain an EIN (Employer Identification Number) – Required by the IRS for tax purposes.
• Apply for Tax-Exempt Status – File IRS Form 1023 or 1023-EZ to request 501(c) recognition.
• Register for Texas Tax Exemptions – Apply for state sales tax and franchise tax exemptions if applicable.

Common Reasons for IRS Rejection of Tax-Exempt Applications

Many nonprofits face delays or denials due to application errors. Here are common mistakes to avoid:

• Incomplete or Incorrect Form 1023 – Missing information or errors can lead to rejection.
• Issues with Organizational Structure – Bylaws must align with nonprofit requirements, ensuring no private benefit.
• Insufficient Documentation of Public Benefit – The IRS requires clear evidence that the nonprofit serves the public interest.

Proper planning and legal guidance can help avoid these pitfalls and secure tax-exempt status efficiently.