What is the Form 1023?

Form 1023 is an application used by organizations to apply for recognition of exemption under Section 501(c)(3) of the Internal Revenue Code. In this article, we will provide you with the exact steps for filling out Form 1023 and other important information.

• Organizational details: Legal structure, history, and governing documents.
• Activities: Descriptions of past, present, and planned activities that demonstrate the organization's purpose and operations.
• Financial data: Revenue sources, expenses, assets, and liabilities.
• Compensation: Information on compensation for officers, directors, and key employees.
• Foundation classification: Details on the organization's foundation classification and its relationship with supported organizations, if applicable.
• Additional material: Sample conflict of interest policy and a glossary of terms to assist in completing the form accurately.

Who needs to file the Form 1023?

Form 1023 is typically required for organizations seeking tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. This includes charitable, religious, educational, scientific, and literary organizations, as well as those dedicated to preventing cruelty to animals or children, and organizations that foster national or international amateur sports competition. However, there are certain exceptions to this requirement:

• Small organizations: Organizations with gross receipts of $5,000 or less per year are not required to file Form 1023, but may still choose to do so for formal recognition of their tax-exempt status.
• Churches and church-affiliated organizations: Churches, their integrated auxiliaries, and conventions or associations of churches are not required to file Form 1023, although they may voluntarily apply for recognition of their tax-exempt status.
• Subordinate organizations: Organizations that are covered under a group exemption letter, which is a ruling or determination letter issued to a central organization recognizing the exemption of its subordinates, do not need to file Form 1023 individually.
• Governmental units: State institutions, government corporations, and federally recognized Indian tribal governments are not required to file Form 1023.
• Foreign organizations: Certain foreign organizations that receive substantially all of their support from sources outside the United States may be exempt from filing Form 1023.

Essential updates to the Form 1023

In recent years, the IRS has made some updates to Form 1023 to streamline the application process and improve efficiency. Some of the most notable changes include:

• Form 1023-EZ: In 2014, the IRS introduced Form 1023-EZ, a simplified version of the standard Form 1023. This shorter form is designed for smaller organizations with annual gross receipts of $50,000 or less and total assets of $250,000 or less. The goal of Form 1023-EZ is to reduce the burden on smaller organizations and expedite the approval process.
• Electronic filing: Starting in 2020, the IRS made it mandatory for organizations to file Form 1023 electronically through the Pay.gov website. This change aims to improve processing times and reduce errors in the application process.
• Updated instructions: The IRS periodically updates the instructions for Form 1023 to provide clearer guidance and address common questions from applicants. It is essential for organizations to review the most recent instructions when completing the form to ensure compliance with the latest requirements.

2024 Form 1023 filing deadlines

Organizations seeking tax-exempt status under Section 501(c)(3) of the Internal Revenue Code must file Form 1023. While there is no specific quarterly due date, it is generally recommended that organizations file the form within 27 months after the end of the month in which they were legally formed. If the form is filed within this timeframe and the IRS approves the application, the effective date of the organization's exempt status will be its date of formation. If the form is not filed within the 27-month period, the effective date of exemption will be the date the form is filed.

Exact deadline dates for 2024

• Form 1023 does not have specific quarterly due dates. Instead, it is recommended that organizations file the form within 27 months after the end of the month in which they were legally formed.
• If the form is filed within this 27-month period and the IRS approves the application, the effective date of the organization's exempt status will be its date of formation.
• If the form is not filed within the 27-month period, the effective date of exemption will be the date the form is filed.

Form 1023 late payment penalty

It is important to note that failing to file within the recommended 27-month period can impact the effective date of an organization's tax-exempt status. If Form 1023 is not filed within this timeframe, the effective date of exemption will be the date the form is filed, rather than the organization's date of formation. Additionally, underreporting tax liability can lead to penalties, interest charges, and potential revocation of tax-exempt status. To avoid these consequences, organizations should ensure they complete and file Form 1023 accurately and within the recommended time frame.

Step-by-Step Instructions for IRS Form 1023

Part I: Identification of Applicant

• Line 1: Enter the full legal name of the organization as it appears in your organizing document.
• Line 2: If applicable, enter the care of name.
• Line 3: Provide the organization’s mailing address, including room or suite number if applicable.
• Line 4: State the employer identification number (EIN).
• Line 5: Specify the end month of the organization’s annual accounting period.
• Line 6: Enter the name and contact details of the primary contact (officer, director, trustee, or authorized representative).

Part II: Organizational Structure

• Line 7: Indicate if the organization is represented by an authorized representative such as an attorney or accountant. If "Yes," attach Form 2848.
• Line 8: State if a person not one of the officers, directors, etc., was paid to help manage, plan, or advise about the structure or activities of the organization.
• Line 9a: Provide the organization’s website URL.
• Line 9b: Provide the organization’s email (optional).
• Line 10: Answer if certain organizations (like churches) are claiming an exemption from filing annual returns (Form 990).
• Line 11: Enter the date the organization was incorporated or formed.
• Line 12: Specify if the organization was formed under the laws of a foreign country.

Part III: Narrative Description of Activities

• Provide a full narrative of all the activities the organization conducts or plans to conduct, including fundraising. This narrative helps the IRS determine if the activities meet the requirements for tax-exempt status.

Part IV: Compensation and Other Financial Arrangements

• Detail compensation and other financial arrangements with officers, directors, trustees, employees, and independent contractors.

Part V: Financial Data

• Provide financial data including statements of revenue and expenses, balance sheets, and other relevant financial information for the current year and projected future years.

Part VI: Public Charity Status

• Determine and document the type of public charity status the organization is claiming, based on the nature of its funding sources and operations.

Final Steps

• Signature: The application must be signed by an authorized officer or representative.
• Filing Fee: Include the appropriate filing fee based on the organization’s total assets.
• Mail Submission: Send the completed form along with any required attachments and the filing fee to the address provided in the instructions.

How to file Form 1023

As of January 31, 2020, the IRS requires that Form 1023 applications for recognition of exemption be submitted electronically online at Pay.gov. To submit Form 1023, applicants must register for an account on Pay.gov, enter "1023" in the search box, select Form 1023, complete the form, and submit it along with the required user fee payment. The instructions do not provide a method for filing Form 1023 by mail because, as of January 31, 2020, the IRS requires the form to be submitted electronically through Pay.gov. The primary difference is that Form 1023 must be filed online through Pay.gov, and there is no option provided for filing by mail. This change mandates that applicants use the electronic submission process, which involves registering for an account on Pay.gov, completing the form online, and submitting it with the required user fee.

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