We have read the IRS documents, and looked at comments from nonprofits just like yours to recommend the best practices when filling out a 501(c)(3) application.
This article will cover the three areas to help make your filing easy to manage:
Let’s jump in!
As with anything, preparation is key to success (and maybe saving a few headaches!). Let's start on the right foot, you're almost there.
There are a few things you will need to to gather and have in place before you start the 501(c)(3) application process.
The first step of preparing your 501(c)(3) application is to become a legally formed entity. To do this you will need to have your articles of incorporation approved by your state.
Once your articles of incorporation are approved, you are officially established! Now you can move on to the next step.
Employee Identification Number (EIN)
Your EIN is required for the tax exempt filing paperwork (Form 1023), so make sure you have it before you start this process. The IRS has detailed instructions here about how to file a SS-4 to obtain an EIN.
Documents to Include
We’ve got some good and bad news. The bad news is that a 501(c)(3) application is actually a file of documents. The good news is that you may only need one IRS form and supporting documents!
Form 1023 will be the most time-consuming part of the application process. But don’t fret! We are here to give you the best practices and resources to help you get through it.
There are two types of form 1023 to choose from: the long form or the streamlined (1023 EZ) version. Let us explain better the main differences between them:
- Form 1023: This is going to be a great exercise for your Board. As your organization matures, you will need to be able to answer the questions on this form. The form is 40 pages in length and will cost your organization $600 to file. Thankfully the IRS has instructions you can use in conjunction with the document.
- Form 1023-EZ: This form is much easier to file, and most nonprofits prefer to file this version. Why wouldn’t you? It saves time and money, both precious things to a new nonprofit. To qualify for this streamlined form your nonprofit needs to have less than $50,000 in annual gross receipts for the next three years, and your assets cannot exceed $250,000. The form is just 3 pages long and will cost your nonprofit $275 to file. For more information, we have an article dedicated to explain the 1023-EZ in detail!
We have consulted with our community of experts and the consensus is: if your nonprofit meets the requirements to file a 1023-EZ, you should!
These sources say that filing a 1023-EZ is a bit like using a free online tax service. Sometimes you don’t understand everything, and you may answer incorrectly, be sure to research as much as possible before you submit an answer that you are unsure of!
Of course you can submit the form yourself, but we recommend getting some legal advice to ensure that it is filled out correctly. Why? Because it can take on average 18 months to get approval. Furthermore, make sure you qualify to use the EZ form because you should anticipate some random audits. Getting legal help doesn’t always mean shelling out the big bucks, you can check out this article to see what your options are.
Lastly, be sure to fill out your 1023 or 1023-EZ on www.pay.gov and pay the correct fee associated with your form.
This can include your articles of incorporation, business plan, bylaws, and any other documents that your nonprofit uses to organize itself.
The more information you have about what you do and how you do it, the less likely they will send your application back with questions. If you have info, include it!
Thankfully, you will most likely already have the bulk of this information from your business plan. The IRS considers two possibilities for financial information included in your 501(c)(3) application:
- New organizations must provide financial statements for the current year and proposed budgets for the next two years, including a detailed breakdown of revenue and expenses.
- More established organizations (operating for 3+ years) must include financial statements for the current year and two preceding years, including a detailed breakdown of revenue and expenses.
This information is usually included in part six of Form 1023, but if you have additional financial information that is not specifically asked for, it wouldn’t hurt to add it to your application.
This one only applies to nonprofits that will be represented by a third party. Form 2848 gives the third party authorization to speak on your behalf.
If you have already adopted your bylaws, the IRS asks that you include them in your 501(c)(3) application.
If not, we highly recommend you include them anyways. Why? Because bylaws are a great way to include almost all of the miscellaneous information you need in one tidy document. They contain vital information like a conflict of interest policy, which the IRS will look for in your 501(c)(3) application.
In addition, bylaws are a good resource for your nonprofit to help regulate your members, salaried workers, and board of directors.
Thankfully, the IRS has a list of things that can shorten the 501(c)(3) process for you! Check it out here.
Pro tip: Include as much detailed information as you can and have your bylaws already established.
Somewhere in your 501(c)(3) application you should have a detailed narrative of your proposed activities. An easy way to do this is to think of who, what, when, where, and why. If you answer these questions you should have a good framework, and you can just check if there is any important information missing about your activities.
Remember that the IRS will ask you if you have any money coming in from activities that don’t match your purpose. You will have to pay taxes on this income, so include as much information as you can!
Also, don’t hesitate to ask for help from your community! Have someone that has experience with filing a 501(c)(3) application read over your paperwork to make sure that you have everything that you need for your application to be approved.
If you are in a bit of a rush to get your 501(c)(3) application approved, check out the resources that the IRS has available online to help you expedite the process!
We hope this article will help you in your 501(c)(3) application process! Let us know in the comments if there is anything else you are not sure about, and we will connect you with a resource to help 💙
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