One of the biggest hurdles involved in acquiring tax exemption for your non-profit organization is filing Form 1023. Form 1023 is an overwhelming 31 pages in length and canvasses a breadth of information ranging from the tiniest details to broad questions that leave most people scratching their heads. Luckily, some organizations seeking 501 (c)(3) tax exemption are eligible to file the streamlined, 3 page, 1023-EZ form in lieu of the 1023, but the trick is whether your non-profit organization qualifies.
Who qualifies? In general terms, smaller organizations are eligible for the simplified application process. Your organization counts a small one if your gross receipts (as in, the total amounts the organization received from all sources during its annual accounting period, without subtracting any costs or expenses) are normally less than $50,000. Additionally, churches, regardless of gross receipts, may typically file the 1023-EZ. If your organization does not sound like that description, this does not mean your organization will not be able to acquire 501 (c)(3) tax exemption. It simply means that your organization will need to file the longer, 1023 form, and pay the higher filing fee.
So now that you have determined you qualify; what information do you need to provide for the 1023-EZ? The 1023-EZ is used by the IRS to certify that an organization is compliant with 501 (c)(3), and does not engage in prohibited activities. This is confirmed through yes or no questions and a signature promising that the information stated is true. (Additionally, the 1023-EZ records the names and addresses of all of the organization’s officers and directors.) Before filing your 1023-EZ, you should find out whether or not your organization does engage in prohibited or restricted activities.
There are four categories of restricted activities which are as follows: private inurement/private benefit activities, lobbying or legislative activities, political activities, or the acquisition of unrelated business income. Private inurement is when a non-profit’s money is allocated to private uses instead of charitable purposes, such as when the Trump Foundation’s funds were used to purchase a portrait of Donald Trump himself.
Lobbying involves influencing legislation. Any act of participating or intervening in a political campaign for or against any political candidate is political activity and is absolutely prohibited for 501 (c)(3) organizations. Finally, an activity creates unrelated business income if it is a trade or business activity, is ongoing and is not related to furthering the organization’s exempt purpose.
This information should get you and your organization well on its way to completing the 1023-EZ Form, should you have found yourself to be eligible. For more information, check out related resources such as the IRS homepage (www.irs.gov) or the Exempt Organization Charities & Nonprofits homepage (https://www.irs.gov/charities-non-profits).