Applying for 501(c)(3) tax-exempt status is an important step for nonprofit organizations but the process is often accompanied by complex requirements and confusing forms. Whether you’re just beginning your nonprofit journey or just trying to navigate IRS regulations, understanding Form 1023 is essential. This blog breaks down frequently asked questions about Form 1023 and its streamlined counterpart, Form 1023-EZ, to help you make informed decisions and avoid common pitfalls.

Frequently Asked Questions About IRS Form 1023 for 501(c)(3) Status

What is the Form 1023?

Form 1023 is the application filed with the IRS to request exempt status under Section 501(c)(3).  For those organizations who anticipate having less than $50,000 in their first three years the IRS released Form 1023-EZ to help smaller organizations seeking exempt status.  Upon approval, the organization will receive a determination letter from the IRS.  The determination letter provides written assurance that the organization qualifies to receive tax-deductible contributions.

Form 1023 is subject to Federal public disclosure laws. This document is one that organizations should hold in perpetuity.

Who can file Form 1023?

To qualify as tax exempt under IRS Section 501(c)(3), an organization must be organized and operated exclusively for charitable, religious, and/or educational purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.

Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.

Who is exempt from filing Form 1023?

Organizations that comply with IRS Section 501(c)(3) and meet one or more of the criteria below can legally operate as a 501(c)(3) organization without having to file Form 1023.

• Organizations (other than a private foundation) with annual gross revenue below $5,000.
• Churches including synagogues, temples, and mosques.
• Integrated auxiliaries of churches and conventions or association of churches.

Organizations that are not required to file Form 1023 may still choose to do so in order to obtain a determination letter from the IRS.  Many donors rely on the determination letter to approve contributions and/or grants to exempt organizations.

What is the 1023-EZ Form?

In response to complaints about severe delays in approving exempt applications, the IRS issued Form 1023-EZ in July 2014.  This form is significantly easier and shorter than the Form 1023 and 80% of applications that do not require further review are issued within 120 days.  The Form 1023-EZ must be completed and filed online using pay.gov.  An eligibility worksheet must be completed to determine whether an organization is eligible to use Form 1023-EZ.  In general, organizations must have gross revenue below $50,000 and total assets below $250,000 to qualify for the 1023-EZ.  Private Foundations do not qualify for the 1023-EZ.

How long does it take to prepare Form 1023?

Depending on how many additional schedules apply to the organization, you should plan to spend between 20-50 hours preparing the form and compiling all the necessary documents that need to be attached to the application. The IRS does estimate in some cases a novice could take up to 100 hours to complete the Form 1023. Like the 1023-EZ the Form 1023 is required to be filed electronically using pay.gov.

How long will it take to receive recognition of section 501(c)(3) status?

The processing time depends on the volume of applications the IRS is receiving at any given time.  Wait times have been averaging between 6-12 months. The IRS provides a top ten list of tips in order to shorten the tax exempt application process.

An organization can request expedited review from the IRS if they have a compelling reason to have their 1023 application processed ahead of others.  New organization providing relief to disaster victims qualify for expedited treatment.  Other organizations can qualify for expedited treatment if they can show that a delay in obtained exempt status would severely harm the organization.  For example, loss of a significant grant/donation if exempt status is not obtained by a certain date.

When must Form 1023 be filed?

If filing within 27 months of the organization’s formation (typically the date the organization incorporated), exempt status is retroactive to the date of formation.  After 27 months from formation, exempt status is typically granted as of the postmark date on the Form 1023 application.  That means that the organization could potentially be taxed as a for-profit corporation from the date of formation thru the date the Form 1023 was mailed.

Automatically Revoked 501(c)(3) status:

The IRS automatically revokes the tax exempt status of organizations that fail to file the applicable 990 return for three consecutive years.  Once tax exempt status is revoked, an organization must file a new Form 1023 application in order to obtain reinstatement of its tax exempt status.  Process for filing for reinstatement is no different from the process followed by new organizations.  Note that organizations that meet eligibility criteria can use the 1023-EZ to apply for reinstatement of exempt status unless their exempt status has been revoked previously in which case they must file Form 1023.

While the process can be time-consuming and detailed, understanding the purpose of each form, the eligibility rules, and the timelines involved can help your organization move forward with confidence. Whether you choose the standard Form 1023 or qualify for the simpler 1023-EZ, being informed is the first step toward long-term compliance and success. Get in touch with a Wegner CPAs Nonprofit Advisor for help navigating this process.