form 1023

A Complete Guide to Filing Your Form 1023

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Emily

Form 1023 is the document nonprofit organizations need to file in order to apply for tax-exempt status. If filing documents is not among your favorite pastimes, consider it a necessary evil. Not only is Form 1023 needed to become tax-exempt, organizations wondering how to start a nonprofit need it for their 501(c)(3) applications and various state and federal administrative tasks when starting a nonprofit. 

To get you one step closer to opening your doors and changing lives, we break down the key aspects of Form 1023. Although this 40-page document can seem daunting, focusing part by part (and following other relevant nonprofit tips) will get you on your way in no time. 

Let’s go!

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What is the Form 1023?

Solidifying a tax-exempt status is of high priority for any nonprofit. Firstly, when donors or members make contributions to your organization, it is important to make sure that they are able to claim them as deductibles on their tax returns. It is also hugely beneficial for your project funding to avoid hefty taxation fees for large projects.

In order to claim this status with the IRS, nonprofits have to fill out one of two forms: the 1023 EZ, or the classic 1023. They are the two different versions of the IRS tax form used to establish recognition for tax exempt-status. Form 1023 is 40 pages long in totality, and it costs $600 to file. 

Form 1023 EZ is a much shorter and less expensive document. However, only some nonprofits are qualified to file it. There is a list of restrictions and a set of 30 questions that must be answered before eligibility can be determined accurately. 

Emily ready to file her Form 1023Emily is rearing and ready to get her Form 1023 filed!

Form 1023 is a longer and fuller version, and it is much more inclusive. It comes with an important set of deadlines to be met. However, unlike the shorter 1023 EZ version, all nonprofits are eligible to apply with Form 1023. The depth and reach of documents also tend to have more diverse applications for charities. 

Pro Tip: The IRS Form 1023 filed on pay.gov is the official version of the document. You can find additional filing information on the IRS website.  

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Who is Eligible to Request Tax-Exempt Status?

To qualify for the exemption, the activities of your organization must be limited to only the purposes that are classified as tax-exempt. There is a list of prohibited activities for tax-exempt organizations, such as participation with political campaigns or engaging in illegal acts. This set of restrictions is put in place to keep people from abusing their status, not to limit people from obtaining it. 

Pro Tip: If your organization is eligible to file the 1023 EZ, that is the quickest and easiest way to fulfill the requirement. However, not all organizations are eligible. To determine whether you meet the eligibility requirements, you can find out everything you need to know about the 1023 EZ.

In order to establish tax-exempt status, an applicant must be organized as an LLC, a trust, a corporation, or an unincorporated organization under certain circumstances. It is open for the majority of organizations, such as churches, scientific organizations, and, of course, charitable nonprofits. Save time by ensuring you have the following pieces of information available before attempting to complete and submit the form:

  • Your Employer ID Number (EIN)

  • Determine whether your organization is considered a trust, corporation, LLC or association

  • Organizing documents

    • Trust agreement (for trusts)

    • Approved articles of incorporation (for corporations)

    • Approved articles of organization (for LLCs)

    • Articles of association or constitution (for associations)

  • An understanding of your state’s registration requirements

Once you have determined that you need to file the full Form 1023, it is time to get started. Whether you are completing it alone or have nonprofit project management support, the following 11 sections will help your team breakdown the IRS instructions.   

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Part 1: Identification of Applicant

In this part, you will fill in an overview of the important details about your organization. You will also verify the person you wish to receive all the mail associated with the process and the important members of your organization.

  • Line 1a: The name of your nonprofit. Write your organization’s full name, exactly as it appears on your organizing document (see previous section for the various organizing documents). If the organization’s name has been changed after the organizing document was finalized, ensure you include a copy of the name change amendment to the ap­plication. 

  • Line 1b: Alternate mailing recipient. If you would like someone other than the person named in the organizing documents to receive the mail associated with this form, write their name here. Otherwise, leave this field blank. 

  • Line 1c-i: Mailing address. Enter your full address, which is the address to which all associated documents will be sent. If you use a P.O. box, write that address instead. 

  • Line 2: EIN. Your EIN is acquired by phone, fax, mail, or online. Put that 9 digit number in this space. You cannot fill out this form without your EIN and you are required to have it regardless if you have employees or not. If you have skipped this step, do not worry, you can apply for an EIN number online.

  • Line 3: Month tax year ends. Your tax year is the 12-month period your annual financial records are based on. Write the month your accounting period ends on this line. You can choose any accounting period so long as you comply with the requirements and declare them to the IRS.

Pro Tip: You can choose any accounting period you like as long as you comply with all accounting requirements and declare them to the IRS. Line 3 of Form 1023 is dedicated to communicating to the federal government how your accounting operations will work and during what time (keeping in mind that your first tax year can be less than 12 months depending on when you registered). The accounting period should be included in your nonprofit bylaws. Also, be sure to use a two-number format for the month, for example, 01 for January!

  • Line 4-6: Person to contact + associated info. Name a person, who is an authorized representative such as a sitting nonprofit board of directors member, from your organization who is allowed to speak with the IRS on your behalf in reference to the organization’s activities. If they need more information in the verification process, they will call the number you write on line 5. If you would like to provide a fax number for this person as well, place it on line 6. 

  • Line 7: Fees. This line will have the filing fees, listed by Pay.gov. The user fee for Form 1023 is $600.

  • Line 8: Online presence. List your website, or any website maintained on your behalf. 

  • Line 9: Important people. Write the names and titles of your directors, trustees, or officers. Include a mailing address for them as well, whether it is their home address or the organization’s. The person filing the form should be one of these names. 

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Part 2: Organizational Structure

This section is all about verifying your status as a corporation, LLC, or other eligible applicant. It asks for specific information about your organization, and you will need those supporting documents we mentioned above (particularly your articles of organization). 

  • Line 1: Input the type of organization you are, and your organizing document (Articles of Incorporation). Be sure to include any relevant amendments. Your document must show a valid filing certification. 

  • Line 2: Write the date that your articles of incorporation were filed. Ensure that it is consistent with the date on the organizing documents. If you are a trust, it is the date you were founded, and more info might be necessary. 

Pro Tip: Trusts created by a will must include a copy of the death certificate (or a statement indicating the date of death and a copy of the relevant portions of the will).

  • Line 3: This line is for the location that your organization was initially formed, regardless of where it is now. Any formation site other than US territories is considered a foreign country.

Sam going through his Form 1023Sam is going through his Form 1023 line by line!

  • Line 4: Upload a copy of any internal bylaws (including amendments) for your organization. 

  • Line 5: Determine if you are a successor of another organization, and if so, write them here. This information will likely be well-known if it is the case. 

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Part 3: Required Provisions in Your Organizing Document 

In this shorter part, you must verify that your organizing documents (Trust Agreement, approved Articles of Incorporation or organization, or Articles of Association or Constitution) have all the information that they need. 

  • Line 1: Check yes to the purpose clause if your organizational documents clearly state the exempt-qualifying purposes of your organization, and state where in the document this information falls (page, article, and paragraph).

  • Lines 2a-c: Check yes if your organization has plans for the remaining funds in the event that your organization closes the doors. Specify the location of the information, and whether or not you will be subject to state laws as to your dissolution process. 

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Part 4: Narrative Description of Your Activities

Hang in there, you are â…“ of the way through! This section is intended to describe in full detail all the activities of your organization. This applies to both past, present, and future activities. Attach a one or two page document with all the details. Feel free to attach any additional documentation such as brochures, flyers, or any other details that verify your activities. 

While this section may take a bit of time, ensure you do not rush through it. Be sure that all of the information you provide is accurate and thorough. This section will likely take time, and it is crucial to not rush through it. Your tax-exempt status is dependent upon your activities remaining solely for tax-exempt purposes, and this document is intended to verify that this is the case. Give only relevant information, formatted clearly. You may choose to formulate it like this (please note that this is just an example):

Part 1: General Features

  • Enter an overview of the main goals and aspects of your programs 

  • Enter reasons for formulating your activities 

  • Enter information about available customer basis

Part 2: Fundraisers, Raffles, and Activities

  • Describe fundraising practices in detail

  • Describe raffle practices in detail

  • Describe any other activities in detail

Part 3: Conferences and Other Communications

  • Describe in full your marketing practices

  • Describe how you connect with your members 

  • Describe any communications guidelines and how you enforce them

Create as many sections as you need to encapsulate the activities of your organization fully and be sure to get another opinion to ensure it provides a full picture of your activities.

Pro Tip: Some organizations e.g., organizations focused on credit counseling, childcare, agricultural research, or cooperative hospital service, must meet specific operational requirements to qualify for exemption. If your nonprofit falls into this category, carefully read the IRS Form 1023 instructions to ensure you provide all of the pertinent details. 

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Part 5: Compensation and Other Financial Agreements

  • Line 1a-c: Use this section to write the name of anyone that will receive compensation from your organization. List their full names, titles, postal mailing addresses, and compensation amounts. Ensure this information is fully accurate and complete. Form 1023 provides four rows. If you need more room to include everyone who will receive compensation, attach a separate document to ensure your submission is comprehensive. You will also be required to list the highest compensations and their recipients separately, as well as independent contractors you will work with.

  • Line 2a-c: These questions seek to understand the relationships between the important members of your organization, whether they are family, friends, or partners of any kind. Create supporting documents with more details about the relationship for any questions you answer with yes.

  • Line 3a: Create an attachment detailing the qualifications, average hours worked, and duties of all the people who receive compensation from your organization. 

  • Line 3b: Answer yes if any of the individuals listed (officers, directors, trustees, highest compensated employees, and highest compensated independent contractors) receive compensation from other organizations that are related to you through common control. Also, be prepared to detail the relationship your organization has with the other entity. 

  • Lines 4a-f: Answer yes or no based on whether or not these specific practices will take place in reference to the compensation your organization will provide. 

Anthony going strong on his Form 1023Anthony is still going strong on his Form 1023!

  • Line 4g: If you do not follow any of these practices, provide supporting documents that detail what you do in place of them.

  • Line 5a-c: These questions seek to understand more about your conflict of interest policy. If you have one, be sure to attach it. If you do not have one, attach supporting information as to what your related procedures are.

  • Lines 6-7: These are highly specific questions pertaining to the answers you gave earlier in the section. Line 6 focuses on bonuses and high compensations, and line 7 focuses on purchases or sales of the individuals listed previously.

  •  Lines 8a-f: This section seeks to clarify any contracts, loans, or prior agreements with any of the individuals listed previously. Attach copies of related documents (e.g., leases, contracts, loans, or other agreements) and any practices you intend to utilize to keep things fair. 

  • Lines 9a-f: These questions are pertinent to any of the individuals listed previously. If they are heavily involved with a separate nonprofit and you have contracts, loans, or any other agreements with them, detail the arrangements, including how they will be kept at arm's length. Attach copies of the documents (e.g., leases, contracts, loans, or other agreements) and any practices you intend to utilize to keep things fair. 

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Part 6: Your Members and Other Individuals and Organizations That Receive Benefits From You 

This section has yes or no questions intended to clarify the goods, services, or funds you may provide in your tax-exempt purpose. 

  • Lines 1a-b: Check yes if you will provide goods, services, or funds to individuals or organizations. 

  • Line 2: Check yes if there is any limitation on your services to a specific group of people, and provide supporting documents as to who they are, and why the limitations are in place.

  • Line 3: Check yes if anyone who receives your services has any relationship with the individuals previously listed and provide supporting documents if necessary. 

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Part 7: Your History 

If your organization was a successor to another organization, this section is for you (otherwise, just check "no"). 

  • Line 1: Check yes if you are a successor, meaning you took over the activities of another organization, including 25% or more of the market value of their net assets. 

  • Line 2: Check yes if the document is being submitted more than 27 months after your legal formation. 

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Part 8: Your Specific Activities

This section is a little tedious, but take your time and make sure you gather all the important information. There are a lot of specific details, and it is imperative to get them all right the first time. As you fill out this section, be very mindful as to which lines require supporting documents. Let’s break it down, line by line: 

Pro Tip: There are lawyers who specialize in filing these forms for nonprofits. It may be worth reaching out to one of them to review your form before submission (as going back and forth with the IRS can be a very long process!)

  • Lines 1-2b: To remain a tax-exempt organization, you will be prohibited from interfering with politics. Answer these questions based on present, past, or planned activities.

  • Lines 3a-b: If your organization will participate in any bingo or gaming activities, provide extensive details, including financial information and names of those involved. 

  • Lines 4a-e: These are straightforward inquiries which request details about your fundraising activities. 

  • Line 5: Check yes if you are affiliated with a governmental unit, and if yes, explain.

  • Line 6: If you have any economic development programs, explain them in full, including who benefits from them. 

  • Lines 7a-b: These questions pertain to the development and management of your facilities and activities by the hands of your volunteers, managers, or trustees. Detail their relationships, if any. 

  • Line 7c: Detail any business or family relationship between any of the individuals which will be doing work within your organization. 

  • Line 8: Check yes if you will be entering any joint ventures with a partner other than another 501(c)(3) organization. 

  • Lines 9a-d: If you are a childcare organization, detail your qualifications. If not, check no and go to line 10. 

  • Line 10: Check yes and explain the financial details if you will be owning any intellectual property. Also, detail the marketing and distribution processes. 

  • Line 11: Check yes and provide accurate details if you will accept non monetary donations such as land, intellectual property, or other various royalties. 

  • Lines 12a-d: Answer these questions in reference to the operations you will enact in foreign countries. Attach a document that details the foreign countries and regions, your operations in each country/ region, and how your operations in each country/ region further your exempt purposes. 

  • Lines 13a-f: Provide various details for the grants or distributions you make to other organizations. Attach any useful documents pertaining to the grants or distributions, and describe the processes you used to oversee their enactment. 

  • Lines 14a-f: This section focuses on the distributions you make to foreign organizations and seeks to ensure that all parties receive all pertinent information. It also asks what your procedures are to ensure that your exempt purposes are being served as a result of your distributions. 

  • Line 15: Explain your connection with any other organization you have a close connection with. A "close connection", as defined by the IRS, is an organization which fulfills one of the following conditions in relation to your organization:

    • If one organization controls the other through common officers or trustees, or by the ability to approve or reject a budget

    • If both organizations were founded by the same people at about the same time

    • If both organizations operate closely with regard to facilities, employees, programs, or projects

    • If you or your organization works with people who have substantive control over the other organization

  • Lines 16-22: These questions are directed at the type of organization you are. They ask specific questions about any medical care, educational, or elderly care you provide.

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Part 9: Financial Data

This section is a table of information in which you will be plugging in specific numbers and amounts. It is important to triple check all the info, including the correct sums of boxes that are listed. You will need to organize your information on membership fees, total donations received, all revenue, and compensation given. It is mostly self explanatory, and you simply must have the correct information at your disposal. 

The requirements vary based upon the number of years your organization has been in existence. Note that "years of existence" refers to completed tax years, and if you have been in existence for many years, focus on the previous 5 taxable years. For many of the questions, you will need to attach an itemized list, so you will need to be in good communication with your financial department as you do so. 

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Part 10: Public Charity Status

This section seeks to classify your organization as either private or public. If you already know that you are a private organization, you can check yes to line 1 and then skip right to line 5, but otherwise, let’s dive in:

  • Lines 1a-b: Check yes if you are a private foundation, and provide a statement that describes specifically where your organizing document includes the required special provisions outlined in Internal Revenue Code Section 508(e)

  • Line 2: Are you a private operating foundation? If your answer here is no, you can skip the rest of this section. If yes, move forward to answer specific questions about your status. 

salma excited about the 1023 formThis is the home stretch, Salma! Keep going!

  • Line 3: Check yes if you have existed for more than one year, and provide additional info about your private operating status. 

  • Line 4: As a private operating foundation, check yes if you have attached supporting documents that verify your operation as being within tax-exempt guidelines e.g., an affidavit or opinion of counsel, (including a written affidavit or opinion from a certified public accountant), that outlines facts concerning your operations and your likelihood to satisfy the requirements to be classified as a private operating foundation, or a statement describing your proposed operations as a private operating foundation.

  • Lines 5a-j: As long as you answered no to 1a, you will only check one of these boxes. Each line explains a different sort of public charity status. Check the one that applies to your nonprofit. 

  • Lines 6a-b: These ask for supporting documents and more information to confirm your public support status if you checked boxes h, i, or j in the previous question. The language is technical, and you should not worry about it if you are sure it does not pertain to you. If it does, read the questions carefully and determine what information should be included in your attached list. 

  • Line 7: Check yes if you received any unusual grants, or a grant that would hurt your organization rather than benefiting it, during any of the years we are focusing on. Per the IRS, an "unusual grant" is a substantial contribution or bequest from a disinterested person that, by its size, adversely affects classification as a public charity. If so, you will need additional documents as to why the grant was unusual, and more info about the grant itself. 

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Part 11: User Fee Information 

There is a line here for the amount you paid as a user fee, and it is the cost of the application. Once you write the amount, sign and print your name and title on the document, and you are all finished! You made it through, and you are well on your way to becoming a tax-exempt organization. Cheers to you!

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Final Thoughts

Congratulations, you have made it through the Form 1023 gauntlet! Once you submit your form, and possibly take a week-long vacation at a tropical resort to relax, you can move on to other important start-up tasks such as identifying the best insurance for your nonprofit, selecting the best nonprofit bank, investigating volunteer management software, or utilizing national change of address services to keep your volunteer and donor information up-to-date. The fun never ends! Rest assured, however, that Springly will be here for you every step of the way.   

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FAQ

đź’ˇWho must file a Form 1023?

Any organization who wishes to establish a tax-exempt status and who does not fit the eligibility requirements to file the 1023-EZ. Find out more. 

🔑 How long does it take for a 1023 to be approved?

Between 3 and 6 months. Find out more. 

đź“ťDo you need to file Form 1023 every year?

No, just in the beginning to establish the tax-exempt status. Find out more.  

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Emily
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