Take the 1023 to 501 (c)(3)
Oftentimes, people refer to a non-profit organization, tax exempt status and 501 (c)(3) synonymously. In actuality, each term represents a unique part of a two-phase process that involves both state and federal government agencies.
As we discussed in the previous post, “How to Start a Non-profit Organization,“ a non-profit is a business structure formed in accordance with the laws that govern business formation in each state.
When a non-profit seeks to be recognized for tax exemption, it must apply for 501 (c)(3) federal tax exemption through a process overseen by the IRS.
The process that leads to non-profit tax exemption aligns with section 501 (c)(3) of the federal tax code. Section 501 (c)(3) identifies non-profit businesses in each state that qualify for federal tax exemption.
So even though future donors and other members of the non-profit community may use non-profit, tax-exempt, and 501 (c)(3) interchangeably, you now know that, in truth, each term represents a distinct marker on the road to establishing a 501 (c)(3) aligned tax-exempt non-profit organization.
Preparing to Apply for 501 (c)(3) Federal Tax Exemption
In order to apply for 501 (c)(3) federal tax exemption, you must have received your EIN – Employer Identification Number – and the organizational documents (usually Articles of Incorporation) granted by the state.
There are no exceptions to this rule.
You cannot apply for 501 (c)(3) federal tax exemption without your organizational documents and EIN.
Once you have your organizational documents and EIN in hand, you are ready to tackle IRS Form 1023.
The Infamous IRS Form 1023
By now, you have probably heard a few horror stories about IRS Form 1023, such as:
- It’s needy and therefore requires an impossible amount of time, energy and sacrifice. Some have offered up their firstborn:).
- It’s unforgiving – one mistake and YOU ARE DONE! That’s right, stick a fork in it.
- In order to complete Form 1023, you must seek outside assistance from a lawyer or non-profit expert, which can cost hundreds, even thousands, of dollars.
- The mere mention of its name – IRS FORM 1023 – invokes fear, anxiety, dread, dry mouth, heart palpitations and high blood pressure.
Unfortunately, some – if not all – of these tales of terror have been true for non-profit founders in the past.
IRS Form 1023 can indeed be a bit of a nightmare.
The good news is that IRS Form 1023 can be conquered!
I know this because I, and many others, have done so year after year.
And we’ve lived to tell about it!
Plus, I’ll show you how to conquer IRS Form 1023 without incurring the debilitating fear, stress, pain, anxiety and high service fees many non-profit founders pay attorneys and non-profit experts such as myself to complete IRS Form 1023 on their behalf.
What makes IRS Form 1023 so scary? It’s not that the questions are extremely hard to answer. Rather, the difficulty with Form 1023 lies in its tedious structure, scope and presentation.
Leave it to Uncle Sam to go and make things so complicated. . .
You see, every portion of the 11 section form, in particular the narrative and the budget, has to be filled out comprehensively, in great detail, and without any room for error.
With so much attention required for every little detail, it’s no wonder that IRS Form 1023 has led to so many sleepless nights. The smallest mistake can cause 501 (c)(3) federal tax exemption for your non-profit organization to be delayed or denied.
Yes, it’s that serious.
The answers you provide on IRS Form 1023 are permanently attached to your non-profit for the rest of its life. Donors and other stakeholders can at any time request your filed Form 1023 to see how it aligns with what you promised to do vs. what you are actually doing with your tax-exempt status.
Therefore, IRS Form 1023 and its impact on the future of your non-profit can be overwhelming and scary.
That’s why it’s important to approach IRS Form 1023 as you would a herd of wild buffalo – very strategically.
The best strategy for conquering IRS Form 1023 is to break it down bit by bit and create an action plan to tackle each section. Instead of trying to wrap your head around Form 1023 in its entirety, strategically embrace each section one at a time.
By doing so, you will:
- Better understand why each section matters to the IRS
- Craft a mission statement, budget and narrative that will help you tell the IRS as well as other stakeholders – including future donors – the best story of your non-profit
- Reduce elevated stress and anxiety levels associated with all things IRS
IRS Form 1023 is a battle of skill and will. If you approach it correctly, with all your ducks in a row, you will earn 501 (c)(3) federal tax-exempt status for your non-profit organization, as well as a well-deserved sigh of relief.
If you don’t approach IRS Form 1023 with a strategy firmly in place, those horror stories you’ve heard may become your reality. You don’t want that. No one does. Let’s do this the right way, shall we?
Now that you have the lay of the land and are mentally prepared to do battle, click on my next post Act I of IRS Form 1023 In Three Acts, where I guide you in strategically attacking each part of the 501 (c)(3) federal tax exemption application – IRS Form 1023.
Until then, keep your head up and keep fighting the good fight for those in need.
“I’m a non-profit expert with 20 years in the trenches. Having seen, time and time again, new non-profit organizations struggle to get off the ground and compete with established charities for monies and other resources, my primary objective is to level the playing field for emergent non-profits and other charitable start-ups so they are better equipped for long-term sustainability, increased community impact and overall financial success.” Reet Alexander
P.S. If you’re tired of reading and you’re ready to get busy doing, click here to be notified when enrollment opens for my crash course – Get Non-Profit Tax Exemption In 10 Days. In this online workshop, I’ll help you complete the application process and qualify for tax exemption in 10 days. Yep, you read that correctly – 10 days. Click here to get on the list.
*Image of herd of buffalo courtesy of South Dakota State News.