After an organization meets the operational and organizational test, the next step in filing for tax exemption under Section 501 c3, for organizations that are not able to self declare such as churches, is to file a form 1023, or 1023ez with the IRS.

Form 1023 is a 12 page application with schedules, and there are 38 pages of instructions. The assistance of an attorney is not required, yet it is an area where an attorney can be particularly helpful in terms of guiding the applicant through the process.

Nonprofit 101: Forming a Nonprofit & Applying for Tax Exemption with Erin Bradrick
Erin Bradrick is Senior Counsel at NEO Law Group and a contributor to the Nonprofit Law Blog. Erin’s practice focuses on corporate, governance, charitable trust, and tax matters solely for nonprofit and exempt organizations.

In this CLE class clip, Erin discusses Applying for Tax Exemption Form 1023.

You can watch the complete Nonprofit Law CLE class here:
Nonprofit Law CLE

The first section of the application asks for basic information about the organization. Including weather the organization has an authorized representative, or has paid anyone such as an attorney to advise the organization in respect to the organizations structure, activities, or finances.

There is also a question about the organization’s business form, such as is it a corporation, LLC, an unincorporated association, or trust. The organization will also be required to attach its articles of incorporation and its bylaws to the application, specifically pointing out where in its articles their purpose statement and the dedication dissolution clause reside. Failing to attach the articles of incorporation can be the major reason an application is delayed for processing by the IRS.

The next section of form 1023, requires a narrative of activities. This requires the organization to include an attachment with the application that describes the organization’s past, present, and planned activities in significant detail. Applicants are required to fully describe each activity, who conducts the activity, when and where the activity is conducted, how the activity furthers the organization’s exempt purposes, how the activity is funded, and what percentage of the organizations total time is spent on the activity.

Additionally, an applicant is required to provide a list of names and compensation amounts of all directors and officers; the five highest compensated employees and independent contractors of the nonprofit who will receive compensation of 50,000 dollars or more annually. At this time, all familial and business relationships among these individuals will need to be explained. Qualifications and duties of each member is required, as well as the average number of hours to be spent on nonprofit activities.

The application also asks if the organization has adopted a conflict of interest policy. Federal law doesn’t require nonprofits to provide one, yet will require the organization to show it has made some effort to insure a conflict of interest doesn’t occur.

If a nonprofit files the form 1023 within 27 months of its formation and is granted tax-exempt status, the exemption will be automatically retroactive to the date of incorporation. Any organizations filing after the 27 month period, will have its exempt status marked the date it filed the form 1023.