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Determining Tax-Exempt Status

Statutory law generally determines whether an organization is exempt from taxes. Section 501 of the Internal Revenue Code (IRC) provides the basic rules for tax-exempt status at the federal level. The Internal Revenue Service (IRS) is the federal body responsible for recognizing that an organization qualifies for tax-exempt status. An entity that wants to seek recognition for this status must file a form entitled “Application for Recognition of Exemption.”

State laws regarding tax exemptions vary. Those who form nonprofit entities should consult the laws of relevant states to determine which organizations are eligible for tax-exempt status and which steps, if any, the organization must take in order for the state to recognize that status.

Inside Determining Tax-Exempt Status