Tax Deductibility of Contributions To a Pending 501(c)(3)

Tax Deductibility of Contributions To a Pending 501(c)(3)

Are Contributions Made to a Non-Profit Organization Tax-Deductible if 501(c)(3) Status Has Not Yet Been Received?

The classic chicken and the egg problem as it relates to charities. You want donors to give money to a non-profit so that you can have money to pay for the legal fees and filing fees associated with forming the non-profit.

However, how do you convince people to donate money to the non-profit if they can’t get a tax deduction?

IRS Publication 4220 provides the answer. Generally, if the non-profit organization files Form 1023 (an application to be recognized as a tax-exempt entity) within 15 months from the date the non-profit was created will be considered to be a tax exempt organization as of the date of creation.

The practical impact of this is as follows:

  1. An organization may have fundraisers prior to receiving proof that it has been declared tax-exempt by the IRS;
  2. The non-profit MUST advise potential donors that the 501(c)(3) status is pending.
  3. If the tax-exempt status is granted by the IRS, contributions by donors will be tax deductible.
  4. If tax-exempt status is denied, contributions made by donors will NOT be tax deductible. Additionally, the organization may be liable for paying taxes on money it has received.