What is a Nonprofit IRS Determination Letter?

What is a Nonprofit IRS Determination Letter?

Someone asked you for your determination letter, and you’re not really sure what that is? Well, I'm her to help you out! When someone says, “Can we see your nonprofit determination letter?”, they’re actually referring to a document from the IRS that recognizes your exempt status. It’s often called the “IRS determination letter.” 

A nonprofit applies for this recognition and, after a very… long… wait, it will receive this letter to document its nonprofit status. Now I say “long wait” because it truly does take a long time. As I write this blog, the current processing time from application to assignment for review by an IRS agent is actually 10 months! In other words, as of today, IRS agents are just beginning to review applications that were submitted 10 months ago. If you’re currently waiting for your IRS determination letter, you can check the status of your application by googling “Where’s my application for tax-exempt status?” or by clicking here. This will bring you to the IRS page where they tell you your filing status based on several factors including the form you filed, what date you filed it, and whether or not it's even been assigned to an agent for review. 

 The IRS determination letter is a very important permanent document for the organization. 

You’ll want to save your IRS determination letter in multiple safe places, and file it in a way that will always be protected. 

Your IRS determination letter includes the following important information:

•   Your ruling effective date-  This will be retroactive. So even though the approval process takes a long time, your approval date will be the date of your application, which is helpful. 
•  Your employer ID number (EIN)- That's a critical number to know since it's used for all your federal filings and communications, as well as the identification of your organization for establishing a bank account.
•   The section of the IRS code that qualifies you for tax exemption- I know we always talk about 501c3 organizations, but there are actually many other sections of IRS code which provide tax exemption to different types of organizations. There's 504, 501a, 508, 509, etc. 
•  Your designation as a public or private charity- Those words actually mean what they sound like. They indicate the level of the public's involvement in funding your activity. So a public charity would be one that gets most of its funding from the general public. Likewise, a private foundation is typically funded by an endowment fund or a single funding source. A private charity may also get the majority of its funding from one or two individuals that may even be related. This public/private designation is really important since it factors into many situations including eligibility for grants and the need for an annual test which the IRS requires some organizations to complete.
•  Annual 990 filing requirements- The IRS determination letter will say whether or not your organization is required to file the annual informational return called a 990. 
•  Your accounting period end date- For example, your determination letter may say you have a fiscal year end of December 31st, or June 30th, which are some common fiscal year end dates. This date is really important because nonprofits will sometimes change their fiscal year end for various reasons. If you make such a change, you’ll need to communicate that change to the IRS so that their records match yours. 

Revisit your organization’s original documents. 

If you haven't seen your IRS determination letter, you might want to find out where your organization keeps its original documents, and go take a look at it. Another related document worth checking out is the original application to get tax exempt status. It's called Form 10 23.  It can be really neat to read what your organization’s mission was as the application was filed with the IRS. You’ll want us make sure what you're doing now is pretty close to what you applied to do in the very beginning. If it's not, you may need to file an update to that.

I hope this is helpful!