WildAgain Wildlife Rehabilitation, Inc.

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Demystifying the United States Federal 501(c)3 Application Process:
A Self-Help Discussion

By Allan M. Casey III, WildAgain Wildlife Rehabilitation, Inc.

This article was previously published in Journal of Wildlife Rehabilitation, Summer 2000, Vol. 23, No.2, pgs 18-22. Used with permission from the International Wildlife Rehabilitation Council.


The benefits of becoming a tax-exempt 501(c)3 organization are not reserved for large rehabilitation organizations. Much smaller, home-based independent rehabilitators may also enjoy these many benefits. However, they may find the  application packet and accompanying Internal Revenue Service (IRS) forms somewhat intimidating. Additionally, there are organizational, recordkeeping, and fundraising requirements that need to be understood and satisfied, even for smaller groups. Addressing these requirements up front will help in understanding the application process and ongoing administrative requirements, and help to ensure an activity does not run afoul of IRS regulations.

The Definition of a 501(c)3 Organization

Simply stated, the 501(c)3 designation denotes an organization that is exempt from paying income tax and, as importantly, can assure its donors that contributions and donations are tax deductible to the donor for federal and, generally, state income tax purposes. Designation as a 501(c)3 also places certain restrictions on a few of the organization's activities.

The term "501(c)3" refers to the part of the United States Federal Internal Revenue Code (IRC) that describes certain tax-exempt organizations. Paraphrasing from statutory language, organizations that are exempt from federal income tax include ... corporations that are organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes; to foster national or international amateur sports competition; or for the prevention of cruelty to children or animals. Most wildlife rehabilitators who seek tax-exempt status under this section will qualify under the charitable purpose and, in some cases, the educational purpose. (The prevention of animal cruelty purpose is mostly applicable to domestic animals and livestock, and if applied to a wildlife organization, might be interpreted as an antihunting or animal rights group whose intentions are to influence legislation through lobbying activities.)

The IRC goes further in describing three additional conditions and restrictions. It says that ... no part of the net earnings inures to the benefit of any individual. This means that no one person can use or take any of the organization's financial or other assets for personal use or benefit. However, individuals can be paid reasonable and customary salaries and wages and reimbursed for approved out-of-pocket expenses. The assets and resources of the organization must be kept separate and used only in the furtherance of the organization's stated charitable and public purposes.

Secondly, the IRC restricts the organization such that ... no substantial part of the activities is carrying on propaganda or otherwise attempting to influence legislation (except as provided in subsection (h)).  This does not prohibit such activity, but it does establish limits. For most wildlife rehabilitation organizations, this should not be a problem. As opposed to legislation, attempts to influence regulation such as state wildlife rehabilitation regulations falls outside this restriction. Working with a state wildlife agency to improve or change regulations is an acceptable activity.

Lastly, the IRC prohibits the ... participation in, or intervention in (including the publishing or distributing of statements) any political campaign on behalf of (or in opposition to) any candidate for public office. This strong prohibition applies to the organization and the use of its name. It does not apply to individuals acting on their own behalf, but who may also participate in managing the affairs of the organization, such as directors and officers.

These last three requirements and restrictions must be included in the Articles of Incorporation that are filed with the secretary of state. The fill-in-the-blank form provided by most states does not usually include these three items. While the state is indifferent as to whether or not they are included, the IRS does require them. Rather than using the state-provided form, many perspective 501(c)3 applicants simply type out their own Articles of Incorporation, making sure to address all of the required items from their secretary of state, as well as from the IRS.

Advantages of the 501(c)3 Tax Exemption

The primary benefits enjoyed by a 501(c)3 organization derive from its exemption from paying certain taxes. The tax exemptions include exemption from most United States federal and state income taxes, and generally from sales tax on purchases. While the state income tax exemption is generally automatic, some states do require a separate application. The sales tax exemption certificate usually requires an application, once the 501(c)3 status has been obtained. (If the organization plans to sell

any products or merchandise, it will almost always need to obtain a retail sales tax license, and subsequently collect and remit to the state any sales tax on such sales.)

Another benefit of a 501(c)3 organization is its preferred position in receiving public and private charitable funds. The organization can assure its donors that gifts are, in fact, tax deductible for the donor. Additionally, many private and corporate foundations that issue grants to nonprofits require that grant recipients be formally recognized under section 501(c)3.

One other obvious benefit is that the 501(c)3 organization can apply for and use reduced bulk mailing rates. This can result in substantial savings in the mailing of newsletters or educational materials, or letters and brochures soliciting public support and contributions.

Several benefits accrue from organizing as a nonprofit corporation (and an organization must incorporate as such prior to filing for the federal tax exemption). One such benefit includes affording limited liability, in most cases, such that any legal or other claim against the corporation may not exceed the assets of the corporation, and may not fall to the individuals managing the organization. Some of the exceptions to this rule include instances in which directors and officers violate statutory duties as prescribed in state law (such as gross negligence or failing to manage the affairs of the corporation as separate and distinct business). Another exception is where loans in the name of the organization have been personally guaranteed by someone (such as a director or officer). In the case of the organization failing to report and/or pay taxes, the organization's treasurer may be held personally liable in some instances.

The corporation has its own separate, legal existence. To that end, it can transact business, including receiving and maintaining funds; open a bank account; hire people as employees and pay salaries and wages; enter into contracts to receive or provide services; and borrow money and incur debts.

Disadvantages of the 501(c)3 Organization

Many people find the paperwork associated with formally establishing an organization as a nonprofit corporation, as well as the paperwork associated with the 501(c)3 federal filing and ongoing recordkeeping, to be unpleasant and time consuming. Some of the paperwork includes drafting and formalizing the organization's Articles of Incorporation (to be filed with the secretary of state in the state where the organization will have its principal office and conduct business). Drafting the bylaws of the corporation requires thought and effort, as it is the primary document describing how the organization will govern its affairs. Additional paperwork involves preparing minutes of board of directors and committee meetings; establishing and maintaining a set of accounting books and financial records; and preparing and submitting required annual and informational reports.

There are some initial costs associated with the corporate filing with the secretary of state (generally around $50–$100), as well as for the federal tax exemption filing (generally around $150 for smaller organizations). Other costs may include any legal or professional fees to assist with these filings if the organization cannot find someone to perform these services on a pro bono basis.

Additional time and energy is required to manage the affairs of the organization, such as scheduling and holding board meetings, the accounting and recordkeeping cited above, and fundraising activities. Close financial scrutiny and oversight is required to ensure the appropriateness of expenditures and uses of corporate funds. Sources of income must be managed to ensure that certain public support tests are met. Lastly, the organization must be diligent to ensure that everyone in the organization understands and complies with the restrictions or prohibitions on political activities.

The Application Process

The 39-page application packet (IRS Form 1023) can be intimidating and overwhelming. attorney Anthony Mancuso's How to Form a Nonprofit Corporation (Nolo Press) is an excellent resource that helps the applicant work through these forms, line by line. The book costs less than $50 and includes a computer diskette containing many of the forms needed for the initial corporate organization and filing.

There are actually only about nine pages in Form 1023 that most wildlife rehabilitation organizations will need to complete. While many of the questions on the forms deal with corporate governance issues, there are a few critical questions. These include a section to describe the corporation's purpose and objectives in detail. Other important questions cover sources of income, including fundraising strategies and programs. Lastly, the applicant must submit a "best guess" budget of income and expenses for the next three years.

Form 1023 also requires at least two attachments: a copy of the organization's Articles of Incorporation as stamped and filed by the secretary of state, and a copy of the organization's current set of bylaws. Other attachments that will help illustrate the organization's activities include copies of any wildlife rehabilitation permits issued by state or federal agencies; copies of news articles written about the organization; articles published by the organization; certificates of attendance or training attended; and copies of certificates of recognition or awards received from the community.

Other forms that must be submitted with the Form 1023 package include Form 872-C, which extends the time period that the IRS has to audit the organization (this is non-negotiable if 501(c)3 approval is desired), as well as Form 8718, which is the form for the user fee for submitting an application (generally $150, or more for large organizations). While the Form 1023 package is being assembled, Form SS-4 needs to be completed and submitted to obtain a Tax Identification Number for the organization. This is also the organization's Employer Identification Number, and will be needed prior to opening a bank account.

The Advance Ruling Period

Once submitted, the IRS can approve the package as is, or respond back with questions or requests for additional information. The more carefully the package is initially prepared and assembled, the greater the likelihood that it will be approved quickly. Once approved, the IRS will issue the organization an "advance determination" letter granting "provisional" tax-exempt status for a five-year period. If the organization files within the first 15 months of operation, the effective date of this provisional period will be the date of incorporation of the organization. If the organization files after the first 15 months of operation, the effective date will most likely be later. Additionally, that 15-month-or-later delay causes the IRS to want more information about the organization, especially financial affairs. The general rule of thumb seems to be the later the filing after initial incorporation, the more questions and hoops to jump through.

Given no material change in the operations of the organization during that five-year period, the organization will continue to enjoy the 501(c)3 status during the provisional period. During this time, there is typically little or no contact with the IRS, unless the organization's receipts generally exceed $25,000 per year. For this level of income, the IRS requires the annual submission of Form 990, which itemizes the organization's activities, income, and expenses.

The Five-Year Audit

Near the end of the five-year provisional period, the IRS will require the organization to provide information about its sources of income during each of the first five years. This information is submitted to the IRS on the two-page Form 8734. This audit serves to determine whether the organization has met the "public support tests" (described below) as required in section 501(c)3 of the Internal Revenue Code.

If these tests are satisfied, the IRS will issue the organization a revised "permanent determination" letter continuing its tax-exempt status, again absent any material changes in the operation of the organization. The organization may be subject to income tax for any year that it fails any of these tests. Failure may also result in the organization losing its preferred tax-exempt status going forward.

Publicly Supported Organizations

It is clearly in the best interest of the corporation, if possible, to be well aware of and to meet the financial support tests that will establish it as a publicly supported organization. The following rules are not the easiest to understand, but are critical to the proper management of the organization in complying with the 501(c)3 requirements.

The IRC describes two types of organizations that will qualify as publicly supported organizations. The first type (described in Section 509(a)1) is an organization that generally receives at least one-third (1/3) of its total annual receipts from the general public and/or governmental sources. Or, it is an organization that receives at least one-tenth (1/10) of its total receipts from the general public and/or governmental sources and meets the attraction of support requirement. The attraction of public support requirement is generally met by an organization that pursues a broad and visible fundraising effort in the community in an attempt to attract donations. These types of activities include hosting booths or exhibits at such events as Earth Day and other community service gatherings and fairs, as well as mailings sent out to potential supporters and donors.

The other type of publicly supported organization (described in Section 509(a)2)  is an organization that generally receives at least one-third (1/3) of its total receipts from gifts, grants, contributions, fees, and gross receipts from activities related to its tax-exempt purpose (such as providing services or sales of products); and an organization that also receives less than one-third (1/3) of its total support from unrelated business income or gross investment income. Unrelated business income could derive from temporarily renting out to a third party some of the corporation's assets (e.g., personal computer, vehicle, etc.). Gross investment income includes interest, dividends, and capital gains on sale of investments.

The Ins and Outs of Public Support

The regulation complicates this even further by placing certain limits and restrictions on what qualifies as public support, and thus, what can be counted toward the public support percentages described above.

The amount that can be counted as public support by any one person, trust, or corporation is limited to 2 percent of the total receipts received by the organization for that year. For example, if the organization receives a total of $1,000 for the year, only $20 (2 percent of $1,000) of a $50 gift from a member of the general public will count toward public support.

Donations from certain "disqualified" persons do not count at all toward public support, but do count toward total support. These individuals generally include the organization's founders, directors, and officers; certain individuals related to the organization's founders, directors, and officers (such as direct family members); and certain substantial contributors (generally large donors of more than $5,000). While gifts from these individuals are certainly well meaning and appreciated, they serve to raise the amount of qualifying public support the organization must generate and receive through other fundraising.

Lastly, one way to manage these percentages of public support is the receipt of "unusual grants." Unusual grants are excluded from the calculation of both public support and total support. These receipts qualify as "unusual" if they are truly unusual in the sense of being unexpected; they are attracted by the nature of the organization's activities; and if included in the calculation of both total and public support, the grant would cause the organization to fail the public support test.

Admittedly, all of this may seem very confusing. Any organization that files for the 501(c)3 tax exemption needs to be fully aware of the public support tests and clearly understand what qualifies as public support. As such, the organization's directors and officers need to exercise caution in providing large amounts of financial support to the organization themselves, without a corresponding fundraising program to attract broader public support. Too much "personal" financial support may result in the organization being classified as a private foundation, with certain prior income now subject to retroactive taxation.

Is a 501(c)3 Right for You?

While the tax-exempt status is very appealing, it is not right for every organization. As you explore whether or not to incorporate and pursue the 501(c)3 tax exemption, consider your degree of knowledge or comfort with the following:

  • The 501(c)3 organization is a business, requiring a degree of formality and structure.
  • Certain organization decisions are now shared by a board or committee.
  • Thorough and accurate records—such as meeting minutes and bank accounts—must be kept on a timely basis.
  • Fundraising is a critical requirement. Most contributions come in small increments from a wide range of contributors, not just large grants from a few donors.
  • Limited discretionary time previously allocated to direct animal care must now compete with various administrative and fundraising activities.
  • As a publicly supported nonprofit, the organization's activities and financial affairs are much more open to scrutiny from the public and the IRS.
  • The IRS places limits on how much money you can personally contribute, or the   organization may be considered a private foundation, not a 501(c)3.


Nothing in the IRS regulations indicates a minimum size for an organization to qualify as a 501(c)3 federally tax-exempt nonprofit corporation. Small, independent, home-based wildlife rehabilitators can enjoy the same benefits as larger wildlife centers. This important step must be accompanied by the knowledge that a previously informal rehabilitation operation must now be managed as a business. This means such things as establishing a separate bank account for the organization, as well as the need to perform many of the administrative duties mentioned above. Fundraising becomes a more critical activity, in order to meet the public support requirements. It does not mean, as some have been told, that the public must have access to a private home, if the operation is home based. Visibility in the community can be accomplished away from a private home.

The Section 501(c)3 federal income tax exemption clearly provides direct benefits to an organization. It also opens many doors for fundraising opportunities not afforded to non–501(c)3 groups. These, and other benefits, do command a price, in terms of time, energy, and money for recordkeeping, paperwork, fundraising, and the rigors of managing a stand-alone business. In the beginning, close attention is required in the drafting of workable and complete bylaws; the decision to have or not have voting members; and the selection of board members to help guide the organization. Ongoing oversight is required to ensure that all expenses are made solely for the benefit of the corporation in furthering its nonprofit objectives.

While there are a variety of useful resources, the Mancuso book is an excellent resource to guide an applicant through the Form 1023 maze of questions and schedules. Once the application is submitted and approved, the five-year audit clock begins to tick. The audit is simply something to be mindful of up front, in managing the organization's sources of income. Particular attention needs to focused on understanding the various public support tests, as well as what actually constitutes qualifying public support.

With proper recruitment and selection, board members and volunteers can help with the initial 501(c)3 application, in addition to the ongoing recordkeeping. Board members and volunteers should also be called upon and be willing to help with the organization's fundraising efforts.

Someone in the organization needs to understand the entire process described above, even if a professional, such as an attorney or accountant, is asked or hired to prepare the application. The Mancuso book discusses many of the governance issues facing a new organization, from the drafting of bylaws, section by section, to the selection of directors and officers.

Lastly, keep in mind that establishing a corporation and applying for the 501(c)3 exemption is a long-term commitment, and should be accompanied by careful thought, planning, and personal commitment. As is stated in almost all Articles of Incorporation for any nonprofit corporation filed with any secretary of state, the duration of the corporation is perpetual.


Anyone undertaking the formation of a nonprofit corporation and applying for the 501(c)3 federal tax exemption should consider seeking the advice and counsel of legal and tax professionals (or at least someone familiar with the application and administrative requirements discussed above). Many of the tax rules in this area are complex, confusing, and subject to change. If someone wants to take the time and effort to do the research, homework, and preparation, the application can be successfully completed by a layperson. Even then, a thorough review by a professional would serve to make sure the application is complete and might expedite approval.


Mancuso, A. 1990. How to Form a Nonprofit Corporation. (Berkeley: Nolo Press). An excellent guide for new organizations. Puts the IRS regulations into easy to understand language. If unavailable locally, contact Nolo Press at 1-800-992-6656.

Internal Revenue Service. Publication #557 "Tax Exempt Status for Your Organization". Order directly from the IRS at 1-800-829-3676. Some of the same material and information as in Mancuso's book, but is more difficult to read, as are most regulations. Also, all of the forms mentioned in this article are available through this number, or can be downloaded from the IRS website at <www.irs.ustreas.gov>.

About the Author

Allan M. Casey III is cofounder and vice president of WildAgain Wildlife Rehabilitation in Evergreen, Colorado. He and his wife, Shirley, have been permitted rehabilitators since 1986, and have published and presented widely on many rehabilitation topics. Allan was a financial manager for a large international corporation for 23 years. He now works with rehabilitators across the country in matters related to the 501(c)3 tax exemption. This includes the state nonprofit incorporation, drafting of bylaws, selection of board members, and consultation on and preparation of the federal 501(c)3 filing.

To Contact the Author:

Allan M. Casey III
WildAgain Wildlife Rehabilitation, Inc.
PO Box 685
Evergreen, CO 80437-0685   U.S.A.

E-mail: ewildagain@aol.com or visit WildAgain's website at www.Ewildagain.org

This article was previously published in Journal of Wildlife Rehabilitation, Summer 2000, Vol. 23, No.2, pgs 18-22. Used with permission from the International Wildlife Rehabilitation Council.


Copyright 2002. © WildAgain Wildlife Rehabilitation, Inc. All Rights Reserved unless otherwise stated.