Form 1023 is the application used by the IRS to determine if an organization qualifies for tax-exempt status. Tax-exempt status is also known as 501(c)(3) status. It is key for a nonprofit to obtain tax-exempt status within 27 months of being operational. There are a variety of complex questions on this length form, about 40 pages before supplemental materials and the potential addition of schedules. The IRS charges a filing fee of $600 upon submission of Form 1023.
Part 1: Identifying the Applicant
- Name of nonprofit
- Responsible party
- Board members
Part 2: Organizational Structure
- Is your nonprofit a Corporation, LLC, Unincorporated Association, or Trust?
- Formation information
Part 3: Required Provisions in Your Organizing Document
- This section tells the IRS if your organizing document contains the required provisions to meet the organizational test under section 501(c)(3).
Part 4: Your activities
- A very detailed description of what your nonprofit is going to do, who is going to do it, as well as how and where it will be done.
Part 5: Compensation and Other Financial Arrangements
- Sale of goods, services, or assets
- Contracts, loans, or leases
- Business ventures
Part 6: Financial Data
- 3-5 years of financial reports or projections (depending on how long the organization has been in existence)
- Statement of Revenue and Expenses with an itemized list
- Balance Sheet containing Assets, Liabilities, and Fund Balances or Net Assets
Part 7: Foundation Classification
- Classification within private foundation or public charity groups
Part 8: Effective date
- Based on when you legally formed
Part 9: Annual Filing Requirements
- Form 990 information
Part 10: Signature
- Signature, title, date
- Supplemental materials
Once submitted, it generally takes the IRS 6 months to determine if the application for tax-exempt is approved or not. However, recently with COVID-19 complications, it is taking the IRS up to 12 months from the application date to make a determination. If something is unclear to the IRS, they will send a letter of inquiry to which additional explanations will need to be provided. This will slow down the process of obtaining 501(c)(3) status.
While you can fill out the application yourself, you are likely to run into questions that require legal counsel. At Mission Counsel, we have extensive experience with Form 1023 and have helped many organizations obtain their tax-exempt status. We would be happy to do the hard work for you. Let us know if you need help and we will gladly partner with you to help resolve confusion about applying for 501(c)(3) tax-exempt status. Request a free 15-minute appointment here.