For a corporation to obtain tax-exempt status and become a 501c3 Nonprofit Corporation, you must complete IRS Form 1023, the Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.
The IRS estimates it takes five hours for the average person to review and understand the law behind Form 1023. However, completing the form takes much longer, as a great deal of information needs to be gathered first.
Applying for 501c3 status
Before filling out Form 1023 and applying for 501c3 status, you must prepare and file nonprofit articles of incorporation with the corporate filing office of the state where your corporation is located. To do this, your organization must have a written mission statement, a board of directors, company bylaws, a budget, and an accounting system.
Apply for a federal employer identification number (EIN). This can be done online through www.irs.gov.
Fill in the section of Form 1023 on organizational structure. You must attach a copy of the articles of incorporation and the corporate bylaws to the application form. The articles of incorporation must include a clause stating the corporation was formed for a recognized 501c3 tax-exempt purpose, and a clause stating that, at dissolution, any assets remaining will be distributed to another 501c3 tax-exempt nonprofit.
Fill out the section on narrative description. Provide a detailed description of the organization's activities. List the activities requiring the greatest time and resources first. You must also explain in detail when the activity began, who conducts the activity, and how it is funded.
Fill out the section on compensation and financial arrangements by giving the required information about the amount of compensation paid to directors, officers, five highest-paid employees, and contractors.
If the corporation has been in operation for more than five years, you must provide financial data for the previous five years. This includes detailed expenses and revenue reports. Organizations in operation for fewer than five years must provide financial data for each year they have been operating and projections for future years.
Check your documents. On every document that is included with form 1023, you must list the organization's name, address, employer identification number, and the line item number on the form associated with that document. The IRS will keep all the documents, so you should submit copies. However, copies may only contain original signatures, not copied signatures.
Pay the fee. When submitting form 1023, you will have to pay a fee. Fees change yearly, check the IRS website for the current fee.
- You can use the IRS' own software -- Cyber Assistant -- for help when filling in the 1023. You can download this for free from the IRS.
- For information on how to fill out the forms required, the IRS provides a booklet: Publication 557, Tax-Exempt Status for Your Organization. You can order this for free by calling 800-TAX-FORM, or you can download the booklet from the IRS website at www.irs.gov.
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