HOW TO APPLY FOR TAX-EXEMPT STATUS. Table of Contents

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1 HOW TO APPLY FOR TAX-EXEMPT STATUS Table of Contents Basics of Tax Exemption Who Must File a Form (c)(3) Requirements Organizational Test Operational Test Form 1023 Part I. Basic Information about the Organization Part II. Organization s Structure Part III. Organization Test Part IV. Description of Organization s Activities Part V. Compensation Part VI. Service Part VII. Successor Organization Part VIII. Additional Information Part IX. Financial Data Part X. Classification Part XI. Fees Schedules A-H ACT Report i1023 Interactive Form 1023

2 WHO MUST FILE A FORM 1023? A new organization seeking recognition under Internal Revenue Code section 501(c)(3) must file an application. There are a few exceptions to this requirement such as: Churches (and other houses of worship) Organizations whose gross receipts will normally be under $5, (C)(3) REQUIREMENTS All 501(c)(3) organizations must be organized and operated exclusively for one or more of the following purposes: Religious Charitable Scientific Testing for public safety Literary Educational Fostering national or international amateur sport competition, or Prevention of cruelty to children or animals. Whether an organization is organized for one or more of these purposes is determined through the organizational test. Whether an organization is operated exclusively for one or more such purposes is determined thought the operational test. ORGANIZATIONAL TEST An organization meets the organizational test by having properly written organizing documents, such as articles of incorporation, articles of association, trust document, or Constitution. It must limit its purpose to one or more of these listed in section 501(c)(3). Finally the organizing document must not expressly empower your organization to engage in a non-exempt activity. The organizing document must provide that, upon dissolution of the organization, its assets will be transferred o another 501(c)(3) entity. This ensures that the organization s funds are always devoted to 501(c)3) purposes. OPERATIONAL TEST A 501(c)(3) organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish exempt purposes. An organization will not meet this test if more than one insubstantial part of its activities does not further any exempt purpose. A charity must limit its participation in some activities while absolutely refraining from others.

3 FORM 1023, APPLICATION FOR RECOGNITION OF EXEMPTION UNDER SECTION 501(C)(3) OF THE IRC Part I. Basic Identification of Applicant: Name Address Contact information Employer Identification Number (EIN) Organization should make sure it has one before it applies for tax-exempt status. You can obtain an EIN on Organization s formation date Month its accounting period ends Whether the organization is represented by an authorized representative (such as an attorney or accountant) o If the organization is represented by an attorney or accountant, it must submit a signed Form 2840, Power of Attorney and Declaration of Representative, designating the individual who will be representing the organization. Part II. Organizational Structure: Is the organization a corporation or other type of entity, and if it has bylaws. Part III. Required Provisions in Your Organizing Document: Whether the entity s organizational documents, such as Articles of Incorporation, meets the organizational test. Part IV. Narrative Description of Your Activities: Applicant must submit a detailed narrative description of the organization s past, present, and future activities. This is the organization s opportunity to tell its story. The organization explains what it is doing and how those activities further the organization s tax-exempt purposes. Applicants should be thorough in writing this narrative and to attach any supporting documentation (such as brochures, newsletters, and other material) that may help the IRS better understand their activities. Part V. Compensation and Other Financial Arrangements With Your Officers, Directors, Trustees, Employees, and Independent Contractors Questions about compensation and other financial arrangements with the organization s officers, directors, trustees, employees, and independent contractors. It also asks about family or business relationships between officers, directors, or trustees, and how compensation arrangements are made. The purpose of this Part is to establish if the organization has a conflict of interest policy. The IRS wants organizations to adopt such policies because it shows that they are committed to good corporate governance. Part VI. Your Members and Other Individuals and Organizations That Receive Benefits From You

4 These questions are on whether the organization provides goods or services to individuals, and whether the provision of these goods or services is limited to certain people. Part VII. Your History These questions ask if the organization is a successor to another organization and whether it s submitting Form 1023 within twenty-seven months of its legal formation date. This is important because f an organization waits tool long to submit its application, the IRS may only be able to grant exemption from the postmark date of the application forward, as opposed to granting exemption effective n the organization s date of formation. Part VIII. Your Specific Activities The questions in this Part depend on the answers given in previous Parts. It asks whether the organization will engage in political activities, how it will raise funds, and more. Additionally, it will ask questions that determine whether the organization is a specific type of organization, such as a hospital, charitable risk pool, child care organization, or school. Some of these types o organizations are required to fill out additional schedules. Part IX. Financial Data This Part asks for financial data, including a statement of revenues and expenses. New organizations can provide projections on revenues and expenses for future years. This sections helps figure out whether an organization meets the public support test. Part X. Public Charity Status This Part classifies an organization as a private foundation or a public charity. Private foundations typically have one or a few contributors who provide their funding. They typically do not conduct charitable activities themselves, but make grants to other organizations that conduct charitable activities. Public charities often have a wide base of support from many donors, or from fees for services. Public charities are subject to fewer rules and restrictions on activities and expenditures as compared to private foundations. If an applicant states it is not a private foundation, it must specify why not. If it s a school, church, hospital or one of a few other specified types of organizations, it can say so. If it s not one of those aforementioned entities, the applicant can be public charity under either section 509(a)(1) or 509(a)(2). Which status an organization qualifies for depends on, among other things, how much of the applicant s total financial support comes from publicly supported organizations, a governmental unit, or the general public. For the most part, a 509(a)(1) organization receives a substantial part of its support from those sources, whereas a 509(a)(2)j organization receives much if its support from contributions, membership fees, and gross receipts from activities related to its exempt functions. 509(a)(1) is a slightly more favorable tax status, but both types of organizations (as well as other kinds of public charities) are generally eligible to receive taxdeductible contributions. Part XI. User Fee Information This Part requests you specify you have enclosed the required user fee. The application must be signed and dated by an officer, director, trustee or other authorized official.

5 Schedules A-H Form 1023 has eight schedules. Many organizations will not have to fill out any schedules but some may have to fill out one or two. When you fill out the core Form 1023, certain answers to specific questions may require you to fill out a schedule. The form will tell you when this is the case. For example, if you answer yes to question 22 in Part VIII, which asks whether you will provide scholarships or other educational grants to individuals, the question says you must complete Schedule H. The Advisory Committee of Tax Exempt/Government Entities (ACT Report) Interactive Form 1023 (i1023) The interactive presentation guides you through the process of completing Form 1023 online. Download and print the form upon completion and mail the completed signed form to the IRS. Form 1023-EZ Form 1023-EZ is a simplified, less burdensome application for smaller organizations to file in order to be recognized as tax-exempt under section 501(c)(3). Many smaller organizations are eligible to file this form and it will greatly streamline the application process for those organizations. It is only three pages long, making it much shorter than Form 1023 It allows organizations to certify they meet the various requirements of section 501(c)(3). An organization that properly completes Form 1023-EZ and pays the user fee will receive a determination letter indicating it is exempt. Form 1023-EZ Part. I: Requirement from Organization Form 1023-EZ asks basic questions about the organization s operations, activities, and finances. It requires the applicant to certify the organization s articles of incorporation or other organizing documents contains language properly limiting its activities to those that would enable it to qualify under section 501(c)(3). It also requires the organization to certify that the organization will not engage in certain prohibited activities and provide names and addresses of officers and directors. The user fee for Form 1023-EZ filers is $ The user fee for the Form EZ must be paid through You may not mail an check to the IRS to cover the user fee.pay.gov accepts payment via credit and debit card, as well as electronic debit from your checking or savings account. Filing Form 1023-EZ does not guarantee the organization s exempt status will be recognized. If the form is incomplete or improperly filled out, it may be rejected. If the IRS has questions about the application, an IRS representative may contact you for additional information. In most cases if the 1023-EZ is completed correctly, the IRS will approve the application without further contact. Once approved the IRS will send a determination letter to the organization say it is exempt from federal income tax. Form 1023-EZ Part. II: Organizational Structure In this Part the applicant specifies whether the organization is a corporation, an unincorporated association, or a trust. You check the box to attest: o The organizing documents limits the organization s activities to the exempt purpose o The entity does not expressly empower the organization to engage in more than an insubstantial amount of activities that do not further your exempt purposes; and

6 o Either contains a provision devoting your assets to charitable purposes upon dissolution or relies on state law to fulfill his requirement. Form 1023-EZ Part III: Your Specific Activities In this Part, the applicant will answer questions specifying whether the organization will be operated exclusively for: charitable, religious, educational, scientific or literary purposes, for the prevention of cruelty to children or animals, or to foster national or international amateur sports competition. You may recognize these as the purposes for which a (c)(3) must be organized and operated. The section lists other activities that the organization must avoid, such as: supporting or opposing political candidates, allowing earnings to inure to the benefit of private shareholders or individuals, or engaging in illegal activities. The applicant will be asked to check a box attesting that the organization will actually avoid these prohibited activities. The final questions ask about whether the organization plans to engage in certain other activities that are not absolutely prohibited. These questions ascertain whether you will: o Attempt to influence legislation o Compensate any of your officers, directors, or trustees o Donate funds to or pay expenses for individuals o Conduct activities or provide assistance outside the United States o Engage in certain financial transactions with your officers, directors, or trustees o Have unrelated business income of $1, or more in a tax year o Offer gaming activities; and o Whether you will provide disaster relief Form 1023-EZ Part IV: Foundation Classification In this Part, the applicant specifies whether the organization is a public charity or private foundation. Public charities are organizations that generally receive most of their support from donations, fees for services, grants, and a wide variety of other sources. Private foundations are funded by one or a few donors and typically will redistribute their funds to other organizations that perform the actual charitable activities. Not Eligible to File Form 1023-EZ Eligibility Worksheet Form 1023-EZ instructions contain an eligibility worksheet, which lists several organizations that are not eligible to file the form, and must file the traditional Form You should not send the eligibility worksheet to the IRS, the worksheet is only for the applicant to ensure the organization is eligible to file a Form 1023-EZ.