501(c)(3) organizations, otherwise known as non-profits, are nothing new in the United States. Despite their ubiquity, however, these organizations offer value to society that is often overlooked. Non-profit organizations carry out activities involving international humanitarian work, youth sports, religious activities, aid to underprivileged groups in the United States, and many more missions beyond these areas. Such organizations are considered tax-exempt under Internal Revenue Code 501(c)(3), and they conduct certain charitable activities deemed tax-exempt by the IRS.
Beginning a non-profit foundation is an honorable undertaking, however, it can be difficult to make sure your new organization completes all the steps necessary to obtain a tax-exempt status. Apart from filing the correct organizing documents, your non-profit organization will need to complete the IRS’s 1023 application. For your non-profit organization to obtain a permanent tax-exempt status with the IRS, it is critical that you accurately complete the 1023 application within 27 months after forming your non-profit. Because the IRS does not like granting tax-exempt status to just any organization, they have made the 1023 application a very difficult and complex form to navigate. Below, I will lay out the steps you need to take to complete a 1023 application.
Before beginning the daunting undertaking of completing the full 1023 application, you may consider taking a look at the IRS’s 1023-EZ eligibility worksheet. Non-profit organizations that meet certain criteria are eligible to complete the 1023-EZ application rather than the full 1023 application. Such criteria include, but are not limited to, transferring less than $50,000 a year into and holding less than $250,000 in assets in the non-profit. The 1023-EZ is much less complicated and intimidating than the full 1023 application.
If your non-profit organization is eligible for filing the 1023-EZ application, then congratulations! In this application, you really only need to provide basic information for your non-profit, and you can save yourself a lot of headache. However, you should still have an attorney prepare your work, or at least review it, just to ensure you have completed everything accurately and correctly.
This application is very complicated and can be up to forty pages long. You will be required to list all of your organization’s board members and their contact information. Furthermore, you need to describe in detail your plans to carry out your tax-exempt activities in such a way that the IRS will be able to see that you fulfill the charitable missions detailed in IRC 501(c)(3). You will also be required to answer a series of complicated questions that will in turn determine how long the application will need to be; your answers to these questions will ultimately determine if you will have to complete additional schedules in the application. Finally, you will need to provide
your non-profit’s current and past financial data and make projections for the non-profit’s future financials. You will also need to include an updated balance sheet for the non-profit.
Here at Sumsion Business Law, we have a seasoned transactional attorney, Tyler Heap, that has assisted dozens of non-profit organizations in successfully completing the 1023 application and receiving permanent tax-exempt status from the IRS. We have created a process to make the application as painless as possible for our clients. If you are looking to create a non-profit organization, we can walk you through that process and take care of the logistical side of the application, so you can focus on your charitable missions that will help change the world.
