13 Common Reasons the IRS Says “No”

There are a number of reasons organizations are not successful in receiving tax exempt status on the first try. I am sharing 13 reasons, based on the IRS’ recommendations for shortening the review process and my personal experience.

1. Using common language to describe your organization’s purpose. In the State of Illinois, there are 33 allowable purposes for which a not-for-profit organization may be formed. You must choose one of the 33 purposes on your articles of incorporation. It is conceivable that you can have a stated purpose in your articles of incorporation that passes muster with the state but not with the IRS. It is important that you describe your purpose that is acceptable to the IRS:

Said corporation is organized exclusively for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code.[i]

If the purpose is not described in a manner that conforms to the IRS language, your application will be returned, and you will need to amend your articles of incorporation.

2. Failure to include language in the articles of incorporation that indicates that no insider, including board members, officers, or any other individual, will benefit financially from the organization.

No part of the net earnings of the corporation shall inure to the benefit of, or be distributable to its members, trustees, officers, or other private persons, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in Article Third hereof. No substantial part of the activities of the corporation shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office. Notwithstanding any other provision of these articles, the corporation shall not carry on any other activities not permitted to be carried on (a)…