The Determination Letter: Holy Grail for Nonprofits

You’ve done it. Your nonprofit is up and running, working to fulfill its mission to the best of its abilities using every available resource. But what if you haven’t yet received a determination letter? Your nonprofit might not be getting all of the benefits it should be. 
 
What is a determination letter? And why is it so important? 
A determination letter is awarded to a nonprofit organization when the IRS has approved its application for federal tax exemption under Section 501(c)(3). This means any donations or grants that are received, or any income earned from group sponsored activities, will not incur tax. This exemption allows your organization to operate more efficiently and devote more funds to your mission. 
 
Several additional perks to consider once your determination letter has been received include the following: 
    • Donors may claim their contributions on their annual tax returns. 
    • Your organization will receive discounts on USPS postage rates, as well as other goods and services. 
    • You will be eligible to apply for grant funding available only to tax exempt organizations. 
    • Your mission gains credibility.  
So, how does your organization go about getting a determination letter? 
The IRS outlines a step-by-step process for all organizations to follow when applying for determination letters. 
  1. Declare the type of organization you are. Are you a trust, corporation, or association? 
  2. Detail the specific purpose of your organization. These can include a charitable, religious, educational, or scientific purpose - for example, fostering amateur sports, or the prevention of cruelty to children or animals. 
  3. Finally, submit the requested organizing documents:
    • a completed IRS Form 1023 
    • a user fee. 

How Long Will This Process Take? 
Once your application is received, the processing time could take anywhere from 3 to 6 months. Longer wait times are also possible. It’s not unheard of for an application to take 9 to 12 months to be processed!

Before applying, you should also make sure that the address you use to apply for your determination letter is the same one you used when requesting a DUNS number and registering with SAM. If a different address is used, well….don’t say we didn’t warn you.
 
Anyway, at first glance, the process of applying for a determination letter is relatively simple. Don't let this simplicity fool you, however. Remember, it is very important that you and your organization take care of this.  
 
Why is it so important, and how can I take care of it
Your determination letter will be needed for a variety of different things. For starters, your organization might be required to file a copy of its letter with the agency that registers nonprofits within your state. Grant applications and other funding programs will usually require a copy as well. Also, without a determination letter, your organization will not receive the previously mentioned perks and benefits, including the coveted status of tax-exemption. 
 
It is vital that the letter be stored in a safe place, both physically and electronically. Additionally, the letter should be readily accessible to individuals or groups requesting information on your organization’s legal and tax status. 
One final note — it is important to remember that the IRS requires you to file annual returns using IRS Form 990 in order to maintain your federal tax exemption status. If your organization fails to do this, your letter of recommendation will be invalidated and you will be stuck going through the entire application process once again
 
Apply today if you haven’t already!
Still unsure how to go about acquiring your determination letter? Contact us today and our staff at MPS Grants will be more than happy to assist you! 
 
A short announcement for our loyal readers: 
 
Coming soon to MPS Grants — How to Start Your Nonprofit, a mini-course offered to you from our founder and president, Catherine Minerich!  Learn how to turn your nonprofit from an idea into reality as Catherine utilizes her many years of experience in this step by ste
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