Nonprofit Lawyer Explains Why Filing Does Not Grant Tax Exemption

Under New York Not-for-Profit Corporation Law (N-PCL) § 402, the certificate identifies the corporation's purposes, classification, and initial directors. Section 403 makes corporate existence effective upon filing. Certain activities require additional action under § 404. The not-for-profit corporations and foundations practice addresses broader formation issues.

State law allows purposes that may be broader than those accepted under Section 501(c)(3). A certificate permitting substantial nonexempt activities can fail the federal organizational test, even when founders intend to conduct charitable programs. The filed language, rather than a mission statement, controls this test.

The certificate must generally restrict the organization to Section 501(c)(3) purposes, such as charitable or educational work. Language authorizing any lawful activity without an appropriate limitation can create a problem. Compare the filed wording with the IRS test before applying.

Upon dissolution, remaining assets must generally pass to qualifying exempt purposes or to a government for a public purpose. Applicable state law can sometimes supply this restriction when the certificate is silent. An express clause permitting private distributions may still require amendment.

Bylaws describe voting, oversight, and internal decision-making. They do not replace the certificate under the IRS organizational test. Directors should also confirm that planned programs advance the stated exempt purposes, since the IRS evaluates operations as well as documents.

Form 1023 is the standard application. The streamlined Form 1023-EZ requires a completed eligibility worksheet. Its financial limits generally include gross receipts of no more than $50,000 annually and assets of no more than $250,000; other exclusions also apply. This differs from the wider federal and state tax framework.

An approved application filed within 27 months after the end of the month of formation can generally establish exemption effective from formation. Filing later may limit recognition to the submission date unless relief or an exception applies. Keep formation and IRS filing records, especially when donations precede approval.

Churches, their integrated auxiliaries, and conventions or associations of churches generally need not apply. Organizations other than private foundations with annual gross receipts normally no greater than $5,000 may also qualify without filing. They must still qualify under federal law; some apply voluntarily to obtain a letter for donors.

Organizations holding charitable assets, conducting charitable activities, or soliciting contributions may need to register with the New York Attorney General's Charities Bureau. Exceptions include certain religious organizations. Register through the online portal; Form CHAR500 covers annual reporting. The foundations and charities practice addresses wider fundraising issues.

Eligible organizations generally apply to the state Tax Department using Form ST-119.2. If approved, the department issues Form ST-119, an Exempt Organization Certificate. Exempt purchases generally require Form ST-119.1. An EIN is not the state exemption number, and exemption on purchases does not necessarily eliminate sales tax collection duties.

A filed certificate evidences corporate existence under N-PCL § 403, while an EIN identifies the organization for tax purposes. Neither proves IRS recognition. Review filed amendments before assessing compliance.

An IRS determination letter states an approved organization's exemption, effective date, and classification. The IRS Tax Exempt Organization Search provides public records about status and eligibility to receive deductible contributions. Check subsequent IRS notices or revocations as well.

Donors have no advance assurance of deductibility while an application is pending. If the IRS later recognizes exemption covering a gift's date, an otherwise eligible contribution may be deductible. A denial or later effective date may produce a different result. A nonprofit lawyer can review the effective date, but founders should not promise deductions without confirming the relevant status.