How to Apply for Tax-Exempt Status

A Guide for Nonprofits in Illinois

Steps to Becoming a Tax-Exempt Nonprofit in Illinois

Obtaining tax-exempt status in Illinois is a multi-step process that involves incorporating your nonprofit, filing with the IRS, and applying for tax exemption with the State of Illinois.

1. Incorporate your nonprofit

Before you can file with the IRS, you need to form an Illinois nonprofit corporation. To form a nonprofit in Illinois, you’ll file Not-for-Profit Articles of Incorporation with the Secretary of State and pay a $50 filing fee. You can apply by mail, in person, or using the IL Secretary of State online form.

In the Other Provisions section­ of the form, you’ll need to include detailed information about your company purpose that meets the IRS requirements for applying for tax-exempt status.

You’ll also need to create nonprofit bylaws. These are the internal rules and procedures that govern your nonprofit. It’s strongly recommended to have an attorney review your Articles of Incorporation and bylaws before you file with the Secretary of State.

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2. Get an EIN

In order to file for tax-exempt status with the IRS, you must have an Employer Identification Number (EIN). This is a tax ID number for your nonprofit, similar to a social security number. You can apply for an EIN for free on the IRS website.

3. Make sure your organization is eligible for tax-exempt status

Make sure to do your due diligence and make sure your organization is eligible for the type of tax-exempt status you’re applying for. The most common type of IRS tax-exempt status is 501(c)(3) status, which applies to charitable, religious, and educational organizations. However, there are several other categories of tax-exempt status, including (but not limited to):

• 501(c)(4) — Social welfare organizations
• 501(c)(5) — Labor and agricultural organizations
• 501(c)(6) — Business leagues
• 501(c)(7) — Social clubs
• 501(c)(19) — Veterans’ associations

If you’re not sure which category your organization fits into, it’s a good idea to consult an attorney.

4. File for tax-exempt status with the IRS

Once you’ve formed your not-for-profit corporation and obtained your EIN, you’re ready to apply for tax-exempt status. In order to be considered tax-exempt from the day you open, you need to apply for tax-exempt status within 27 months of forming your nonprofit. The IRS form you file will depend on the category of tax-exempt status you’re applying for.

501(c)(3) Form 1023 or Form 1023-EZ

To apply for 501(c)(3) status, you’ll file IRS Form 1023 or the more streamlined version, Form 1023-EZ. It’s a good idea to hire an accountant or tax attorney to help you complete this form.

You’ll also need to pay a user fee when you submit your form:

• Form 1023—$600
• Form 1023-EZ—$275

NOTE: Churches, synagogues, mosques, and certain other religious institutions are automatically considered tax-exempt and don’t need to file Form 1023 or Form 1023-EZ.

Who can use Form 1023-EZ?

You should review the IRS instructions for Form 1023-EZ to see if your organization is eligible to use this form. To use this form, your organization must:

• Expect no more than $50,000 in gross receipts over the next 3 years
• Have no more than $250,000 in assets

If you’re not sure whether your organization qualifies for Form 1023-EZ, it’s a good idea to consult an accountant to make sure your application isn’t rejected.

Applying for other tax-exempt statuses

If you’re applying for a tax-exempt status other than 501(c)(3) status, you’ll use a different form.

501(c)(4):

• Form 1024-A
• Form 8976, Notice of Intent to Operate Under Section 501(c)(4)

Other nonprofit or tax-exempt organizations:

• Form 1024

The user fee for submitting Form 1024 and 1024-A is $600 for most organizations.

What to expect after you file

You’ll receive a letter from the IRS confirming they received your application. If your application is fairly straightforward, you’ll most likely receive your determination letter within 90 days, officially approving or denying your application for tax-exempt status.

If the IRS needs more information before they can approve your application, an EO (Exempt Organizations) Specialist will reach out to you to learn more about your organization.

5. Apply for sales tax and property tax exemption in Illinois

Once your federal tax-exempt status is approved, you may be eligible for Illinois sales and property tax exemptions.

Sales tax exemption

You can apply for sales tax exemption by filing Form STAX-1 with the Illinois Department of Revenue online or by mail.

You’ll need to attach:

• Your Articles of Incorporation.
• Your nonprofit bylaws.
• A detailed statement explaining your organization’s purpose and activities.
• Brochures or other printed materials explaining your organization’s purpose and activities.
• A copy of your IRS determination letter.
• A copy of your most recent full-year audited financial statement.

There is no filing fee for this application.

Property tax exemption

If your nonprofit owns property that is primarily used for charitable purposes, you may also be eligible for property tax exemption. You’ll first need to apply for property tax exemption with your local county clerk’s office. Your application will be reviewed by the county and then by the Illinois Department of Revenue.

NOTE: Not all tax-exempt organizations qualify for property tax exemption. It’s highly recommended to seek advice from a lawyer before filing for property tax exemption.

6. Register with the Illinois Attorney General’s office

Nonprofits in Illinois that plan to solicit donations need to register with the Office of the Illinois Attorney General. You will need to submit:

• Form CO-1
• Names, addresses, and phone numbers for all Officers, Directors, and/or Trustees
• All contracts with Professional Fund Raisers (if applicable)
• Religious Organization Exemption Form (CO-3) (if applicable)
• Articles of Incorporation
• Nonprofit bylaws
• Annual reports for the past 3 years or Form CO-2 for organizations less than a year old

The filing fee is $15. If you had already started accepting donations before registering, you’ll also need to pay a $200 late fee.

7. Maintain your tax-exempt status

In order to keep your organization’s tax-exempt status, you’ll need to stay on top of reporting requirements with the IRS, Illinois Department of Revenue, Secretary of State, and Attorney General. This includes:

• Exempt Organization Income and Replacement Tax Return (Form IL-990-T)
• IRS Form 990 or Form 990-EZ
• Illinois Charitable Organization Annual Report (AG990-IL)
• Not-for-Profit Annual Report

NOTE: Churches, synagogues, mosques, and certain other religious organizations aren’t required to file IRS Form 990.

Tax-Exempt Status FAQ