Learn About Tax Exempt Number Requirements for Organizations

Understanding Tax-Exempt Status and EIN Numbers

A tax-exempt number, officially called an Employer Identification Number (EIN) or Federal Tax Identification Number, is a unique nine-digit code issued by the Internal Revenue Service (IRS). Organizations use this number for tax filing, hiring employees, and opening business bank accounts. Think of it like a Social Security number for organizations—it identifies your group in the federal tax system.

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Tax-exempt status means an organization does not pay federal income taxes on money it receives, as long as that money supports the organization's stated charitable, educational, religious, or social purpose. However, getting a tax-exempt number (EIN) is different from getting tax-exempt status. An EIN is simply an identifier. Tax-exempt status is a special designation from the IRS that must be requested separately through Form 1023 or Form 1023-EZ. Many organizations have an EIN but are not tax-exempt. For example, a for-profit business also needs an EIN.

According to IRS data, there are approximately 1.5 million tax-exempt organizations operating in the United States across all categories. These include charitable nonprofits, religious congregations, educational institutions, scientific organizations, and social welfare groups. Each one went through the process of obtaining both an EIN and formal tax-exempt status.

Understanding these two separate processes helps organizations navigate requirements correctly. You need an EIN to function as an organization, but tax-exempt status requires additional steps and ongoing compliance. Some organizations operate with only an EIN and do not pursue tax-exempt status, which means they pay corporate income taxes. Others obtain both designations and operate under specific rules about what activities they can conduct and how they must report their finances.

Practical Takeaway: Before starting the process, clarify whether your organization needs just an EIN (a basic business identifier) or both an EIN and tax-exempt status (which requires meeting specific IRS criteria). This distinction shapes all the steps that follow.

Types of Organizations That May Need Tax-Exempt Status

The IRS recognizes many categories of organizations that may pursue tax-exempt status. The most common is the 501(c)(3) organization, named after section 501(c)(3) of the Internal Revenue Code. These are charitable, educational, religious, scientific, and social-purpose organizations. Religious congregations, food banks, homeless shelters, youth mentoring programs, and school parent organizations often fall into this category.

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A 501(c)(4) organization is a civic league or social welfare organization. These groups focus on community improvement and may engage in more political activity than 501(c)(3) organizations are permitted. Examples include neighborhood associations and community action groups.

501(c)(5) organizations are labor unions and agricultural cooperatives. These groups represent workers' or farmers' collective interests. Similarly, 501(c)(6) organizations include chambers of commerce, trade associations, and professional associations. These groups promote business and professional interests in specific industries or geographic areas.

501(c)(7) organizations are social and recreational clubs. These might include country clubs, hobby groups, or veterans' clubs. 501(c)(12) organizations are telephone or electric cooperatives that provide utilities in rural areas. 501(c)(13) organizations are cemetery companies organized as nonprofit corporations. Each category has different rules about what activities generate taxable income and what records must be kept.

Political organizations, lobbying groups, and certain advocacy organizations may also pursue tax-exempt status under different IRS sections. A political action committee (PAC) cannot be tax-exempt, but a nonprofit that engages in some lobbying activity may still qualify as a 501(c)(3) if lobbying remains a minor part of its work.

Practical Takeaway: Identify which tax-exempt category best matches your organization's purpose and activities. Different categories have different rules about fundraising, lobbying, and how they can use revenue. Getting this right from the beginning prevents costly corrections later.

Steps to Obtain an EIN Without Tax-Exempt Status

If your organization only needs an EIN and is not seeking tax-exempt status, the process is relatively straightforward. You can obtain an EIN online, by mail, or by phone through the IRS, at no cost.

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To apply for an EIN online, visit the IRS website at irs.gov. The online application form is available through the IRS's EIN assistant tool. The process takes about 15 minutes and provides your EIN immediately upon completion. You will need basic information about your organization: its legal name, mailing address, the principal business activity, and the name and Social Security number or ITIN of the person responsible for the organization.

If you prefer to mail an EIN request, you complete Form SS-4 and send it to the IRS office for your state. The IRS typically processes mail requests within four weeks, though it may take longer during high-volume periods. You can also fax Form SS-4 to the IRS, which usually processes faxed requests within four business days.

To request an EIN by phone, call the IRS at 1-800-829-4933. The phone service is available Monday through Friday, 7 a.m. to 10 p.m., Eastern time. An IRS representative will walk you through the information needed and issue your EIN by phone. You will receive written confirmation by mail within two weeks.

Organizations that are not tax-exempt but have employees or file partnership or corporation tax returns must have an EIN. Examples include social clubs that operate as for-profit businesses, volunteer organizations that pay staff, or nonprofit organizations that have not yet pursued tax-exempt status. Even a small organization that pays one part-time employee needs an EIN.

Practical Takeaway: The online method is fastest, taking only 15 minutes and providing an immediate number. If your organization plans to open a business bank account soon, obtaining the EIN online or by phone ensures you have it quickly. Gather your legal name, address, business activity description, and responsible person's Social Security number before you begin.

The Tax-Exempt Status Application Process

Organizations seeking 501(c)(3) tax-exempt status must submit Form 1023 or Form 1023-EZ to the IRS, along with supporting documents. This process is more involved than obtaining an EIN and requires detailed information about the organization's structure, finances, and plans.

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Form 1023-EZ is a shorter application available to organizations that meet certain size and activity requirements. Organizations using Form 1023-EZ typically have projected annual revenue of $50,000 or less and meet specific criteria about their activities and structure. This form is submitted online and the IRS usually responds within two weeks. The filing fee for Form 1023-EZ is $275 as of 2024.

Form 1023 is the full application and is required for organizations that do not qualify for Form 1023-EZ, or for organizations with larger budgets or more complex activities. Form 1023 is more detailed and requires comprehensive information. It includes sections describing your organization's purpose, governance structure, financial projections, compensation practices, and planned activities. You must also submit supporting documents such as bylaws, board meeting minutes, conflict-of-interest policies, and financial statements or budgets. The filing fee for Form 1023 is $600 as of 2024.

Before submitting either form, your organization must first have an EIN. You should also have established governance structures in place, such as a board of directors, bylaws, and a conflict-of-interest policy. The IRS wants to see that your organization is a legitimate entity with proper internal controls, not just an individual's project.

The IRS review process typically takes 2 to 4 weeks for Form 1023-EZ and 4 to 12 weeks for Form 1023, though during high-volume periods it may take longer. The IRS may request additional information, called a Request for Additional Information (RFI). Responding promptly and thoroughly to an RFI is important because delays in response can extend the overall timeline.

Once the IRS approves your application, you receive a determination letter confirming your tax-exempt status. This letter is your official proof of tax-exempt status and is used when communicating with donors, grantmakers, and government agencies. You should keep this letter with your important organizational records.

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