Is it okay to claim and advertise that you are a nonprofit organization to your consumers and clientele before filling a 501(c)(3) application for recognition of exemption?
This question illustrates the difficulty in terminology within the nonprofit sector. Whether an organization can legitimately claim that it is “nonprofit” is a question about the way it is organized. If it is organized as a nonprofit corporation under state law, it can claim to be “nonprofit.”
The question behind this question, however, is undoubtedly whether it is appropriate to advertise that the organization is recognized as exempt under Section 501(c)(3) of the Tax Code before filing or getting the letter of recognition. A few organizations, such as churches, will be treated as exempt even without an application for recognition of exemption. For most 501(c)(3) charities, however, an organization will not be treated as exempt until it is recognized by the IRS as exempt. If the exemption is applied for within 27 months from the last day of the month in which it was formed, the recognition will revert back to the day of formation. A contribution made to the organization before it receives its letter of recognition will thus be deductible.
Therefore, it is appropriate to say that an application for charitable exemption is pending if the application has been filed. You could even say that you anticipate that exempt status will be recognized. It would not be appropriate to claim such status before it is recognized.
Monday, April 28, 2008