Tax Exempt Status: What It Means and How to Keep It
Donors and grant funders can look up your nonprofit in the IRS Tax Exempt Organization Search to confirm it appears on Publication 78, the IRS list of organizations that can receive tax-deductible contributions.
To stay on that list, your nonprofit has to submit every required return on time. Most nonprofits file a single annual return on Form 990 with the IRS, and smaller nonprofits file shorter versions. Your state may also require filings of its own, including charitable registration renewals and, in some states, a separate application for state tax exemption.
At a Glance
- Tax-exempt status means the IRS has recognized your nonprofit as exempt from federal income tax.
- Most tax-exempt organizations file a return from the Form 990 series with the IRS every year.
- The IRS revokes status automatically after three consecutive years without a required return.
- In several states, including California and New York, you apply for a state tax exemption separately from your federal status.
What Tax-Exempt Status Means for a Nonprofit
Tax-exempt status means the IRS has recognized your organization under section 501(c)(3) of the Internal Revenue Code, so it is exempt from federal income tax. Your donors benefit too, because qualifying organizations can receive tax-deductible contributions under section 170.
Most organizations get tax-exempt status by applying to the IRS. The IRS user fee is $600 for Form 1023 and $275 for the shorter Form 1023-EZ. Once your organization is approved, you receive a determination letter, the official notice that confirms your exempt status.
IRS Rules for Keeping 501(c)(3) Tax-Exempt Status
Your nonprofit has to keep meeting the IRS exemption requirements for as long as it holds 501(c)(3) status. It must be organized and operated exclusively for exempt purposes, which means none of its earnings can benefit a private shareholder or individual.
A 501(c)(3) can't take part in any campaign activity for or against a candidate. Lobbying, meaning attempts to influence legislation, can't be a substantial part of what it does.
Unrelated business income is income from a trade or business that your nonprofit carries on regularly, and that isn't substantially related to its exempt purpose. Gross income of $1,000 or more from that business means filing Form 990-T, the Exempt Organization Business Income Tax Return. The test is gross income rather than profit, so an unrelated business that loses money can still cross the threshold.
Form 990-T is a tax return rather than an information return, and it works differently from the Form 990:
- You file it in addition to your Form 990, 990-EZ, or 990-PF rather than instead of one of them.
- It is due by the 15th day of the fifth month after your tax year ends, the same date most organizations file the Form 990.
- The IRS taxes unrelated business income at corporate rates, and taxes exempt trusts at trust rates.
- An organization that expects $500 or more of tax for the year pays estimated tax during the year.
- A 501(c)(3) makes its Form 990-T available for public inspection for three years from the due date, the same as its Form 990.
Owing this tax is a separate question from keeping your exemption. A missed Form 990-T does not count toward the three-year automatic revocation, which covers only the Form 990 series. The size of the business is a different matter. A 501(c)(3) has to operate primarily for its exempt purposes, so the IRS can revoke the status of an organization whose unrelated business has grown substantial next to its exempt work, however the proceeds are spent.
Filing Form 990 Every Year
Most tax-exempt organizations file an annual return using the Form 990 series. Which form applies depends on your gross receipts and total assets.
The IRS sets these thresholds:
| Your organization | Form to file |
|---|---|
| Gross receipts, normally $50,000 or less | Form to file: Form 990-N (e-Postcard) |
| Gross receipts under $200,000 and total assets under $500,000 | Form to file: Form 990-EZ or Form 990 |
| Gross receipts of $200,000 or more, or total assets of $500,000 or more | Form to file: Form 990 |
| Private foundation, regardless of finances | Form to file: Form 990-PF |
Under IRS due date rules, Form 990 and the shorter Form 990-EZ are due on the 15th day of the fifth month after your tax year ends, which is May 15 for a calendar-year organization. Private foundations file Form 990-PF on the same schedule.
File Form 8868 and the IRS grants an automatic six-month extension on those returns. You cannot extend the 990-N. The IRS charges no penalty for a late 990-N. If you miss it three years in a row, though, you lose your tax-exempt status.
Churches and church-affiliated organizations are among the groups that are exempt from the annual return requirement. Most other nonprofits still have to file for a year with no revenue. When your gross receipts are normally $50,000 or less, the 990-N is usually the form you use.
How Nonprofits Lose Tax-Exempt Status and How to Get It Back
The IRS applies automatic revocation of exemption when an organization doesn't file a required return for three consecutive years. The rule covers Form 990, 990-EZ, 990-PF, and 990-N. Revocation takes effect on the original filing due date of the third return.
After revocation, the organization can't receive tax-deductible contributions and is removed from Publication 78. It must file an income tax return (Form 1120 or Form 1041) and pay tax on its earnings. The law prohibits the IRS from undoing a proper automatic revocation, so there is no appeal.
You can still regain your status by submitting a reinstatement application, even if your organization has never had to apply for an exemption before. Our nonprofit compliance services include preparing that application for you.
The IRS offers four reinstatement paths:
| Reinstatement path | When it fits |
|---|---|
| Streamlined retroactive | When it fits: Your organization was eligible to file Form 990-EZ or Form 990-N for each of the three missed years, and you apply within 15 months. |
| Retroactive within 15 months | When it fits: You apply within 15 months and show reasonable cause for at least one of the three years. You also filed the missing returns. |
| Retroactive after 15 months | When it fits: You show reasonable cause for each of the three missed years |
| Effective from the application date | When it fits: You cannot show reasonable cause, or you would rather not try. Your status starts again from the postmark or submission date rather than the date it lapsed. |
The 15-month period starts at the later of two dates: the date on your Revocation Letter (CP-120A) or the day your organization appeared on the IRS Revocation List. On the first path, you submit Form 1023, 1023-EZ, 1024, or 1024-A with the user fee.
How to Apply for State Tax Exemption
In some states, federal approval doesn't exempt you from state taxes on its own. California, Texas, and New York are three of them, and each uses its own agency and its own form. Other states have their own process, and some grant the exemption automatically once the IRS has approved you, so check your state before you assume the determination letter is enough.
In California, you apply to the Franchise Tax Board on Form 3500A if you hold a federal determination letter. If you have no federal exemption, or yours was revoked, you file Form 3500.
In Texas, the Comptroller of Public Accounts requires a qualifying 501(c) organization to apply for state tax exemption on Form AP-204, with a copy of the IRS determination letter. If that letter is more than four years old, you include a current verification letter as well.
In New York, the corporation franchise tax is a charge on corporations incorporated in the state or doing business there. You request exemption from that tax on Form CT-247 and attach your federal exemption letter. Our New York tax exemption page covers that filing in more detail.
Charitable Registration Renewals and Your Tax Exempt Status
Charitable solicitation registration is a state filing that allows your nonprofit to solicit donations from the public in that state. Nonprofits must register before fundraising in 40 states and the District of Columbia. Registration is a separate filing from your IRS status, but the two overlap. Many states ask for a copy of your Form 990 with each renewal, and renewal deadlines often fall on or near your Form 990 due date, so you can track both on one calendar.
Since acquiring Labyrinth, Inc., the leading charitable registration provider in the country, we file a majority of the charitable registrations submitted in the United States each year.
Our nonprofit compliance guide covers the other filings you handle each year. If you're deciding between closing a registration and letting it expire, find out first what happens to a lapsed fundraising registration.
Charitable registration is also separate from the annual report that most states require your nonprofit corporation to file with the Secretary of State to stay in good standing. Our Annual Report Service files those reports for you nationwide, from a single company profile.
How to Keep Your Tax Exempt Status Current Each Year
When you file your Form 990 on time each year, your organization stays on Publication 78, where donors can find it. Check your record anytime in the IRS Tax Exempt Organization Search.
Our charitable registration service files your state registrations and renewals, so your team can keep the Form 990 calendar on schedule.
Automatic revocation - The loss of tax-exempt status that happens by law after three consecutive years without a required Form 990 series return.
Charitable solicitation registration - A state filing that a nonprofit completes before it asks the public in that state for donations.
Determination letter - The letter the IRS sends to confirm it has recognized your organization as tax-exempt.
Form 990 - The annual return most tax-exempt organizations file with the IRS, with shorter versions for smaller organizations.
Publication 78 - The IRS list of organizations eligible to receive tax-deductible contributions, which anyone can check through the Tax Exempt Organization Search.
Unrelated business income - Income from a trade or business that a nonprofit carries on regularly that isn't substantially related to its exempt purpose.
Frequently Asked Questions
As of the IRS's last update to that page on June 28, 2026, the IRS application status page showed 80% of Form 1023-EZ determinations made within 22 days for applications submitted on or before February 24, 2026. When a 1023-EZ needed further review, 80% were decided within 120 days. For Form 1023, 80% of determinations were made within 191 days for applications submitted on or before January 12, 2026.
A nonprofit loses tax-exempt status automatically when it doesn't file a required Form 990 series return for three consecutive years, and the law allows no appeal of that revocation. You can still apply for reinstatement, and eligible organizations that act within 15 months have a simpler option. The IRS can also revoke status for breaking the 501(c)(3) rules, for example, through political campaign activity.
Yes, unless your organization is in a group that doesn't have to file, such as churches. If your gross receipts are normally $50,000 or less, you can usually file Form 990-N (e-Postcard), while private foundations use Form 990-PF. Missing the 990-N still counts toward the three-year automatic revocation rule.
Not always, since federal approval doesn't carry over to state taxes everywhere. In California, for example, a nonprofit with an IRS determination letter files Form 3500A with the Franchise Tax Board. In Texas, a nonprofit applies to the Comptroller on Form AP-204. In New York, a nonprofit files Form CT-247 along with its federal exemption letter.
