​​​​​​​​​​​​Real Help With Your 501(c)(3) Application

Question 9 - Are There Any Alternatives to Filing Form 8940?

A. . There are three alternatives to filing Form 8940:

1. Do nothing.  Your organization will continue to be classified as a private foundation.  It is generally considered to be less favorable to be a 501(c)(3) private foundation because:

  • Percentage limits placed on the amount donors can deduct on their individual income tax returns are lower than percentage limits imposed on donations to public charities.
  • Private foundations pay an excise tax on interest, dividends, capital gains, and other investment income which public charities do not have to pay.
  • There are various restrictions with respect to how private foundations may invest their assets and conduct their operations, with penalty excise taxes imposed on private foundations and managers for violations.
  • Private foundations must file Form 990-PF (currently 13 pages) regardless of their size.  Small public charities are permitted to file the shorter 990-EZ or, in some cases, the very short Form 990-N.
  • Private foundation status may adversely impact an organization's ability to obtain grants or participate in some social media-related fundraisers

2. Dissolve/go out of business.  I am not a lawyer.  Depending on your circumstances, it may be appropriate to consult an attorney.  You will need to:

  • dissolve the current corporation at the state level
  • notify the IRS of the organization's termination  this page has details
  • as a courtesy, you might want to notify donors and grantors, if any, as well as landlords, insurance companies and similar businesses the non-profit has been dealing with 

It is worth noting that if your organization fails to file three consecutive required annual returns (form 990-PF for private foundations, even when an organization is wrongly determined to be a private foundation) the IRS will automatically revoke the organization's exempt status. 

3. Dissolve and start over.  I could not find any IRS guidance saying this approach is not permitted, and a single Revenue Procedure from 2017 actually suggested this approach when an organization already exempt under 501(c)(3) wants exemption  under a different 501(c) subsection: "…may seek a determination letter under a different subsection of § 501(c) once it has dissolved and re-formed as a new entity."  I am not a lawyer, however.  Depending on your circumstances, it may be appropriate to consult an attorney.  To dissolve and re-apply, you would need to:

  • dissolve the current corporation at the state level
  • notify the IRS of the dissolution
  • close your Federal EIN account; this page has details
  • form a new corporation - be sure to use a different name, to avoid confusion
  • get a new EIN for the new corporation
  • close any bank account(s) with the old EIN and open new bank account(s) with the new EIN  (note that the IRS does not allow a private foundation to terminate by transferring its net assets to a newly formed public charity – a drawback of "dissolve/start over" if there are funds to be transferred)
  • submit a new 501(c)(3) application and pay a new User Fee making sure to check one of the public charity boxes in Part IV of Form 1023-EZ (2a or 2b) instead of the private foundation box (Part IV, 3)


This information is not available in the 2020 revision of Prepare Your Own​​​​