The purpose of IRS Form 1023, also known as the “Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code,” is to provide the Internal Revenue Service (IRS) with information. The IRS determines whether an organization qualifies for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. Most charitable, educational, and religious organizations file the IRS 1023 for recognition as tax-exempt under this section.
The information on Form 1023 includes details about the organization’s mission, activities, and financials, as well as its management and governance. The IRS will use this information to determine whether the organization is organized and operated for exempt purposes and whether it meets the other requirements for tax-exempt status under Section 501(c)(3).
Once Form 1023 is approved, the organization will receive a determination letter from the IRS recognizing its tax-exempt status under Section 501(c)(3). The determination letter is proof of the organization’s tax-exempt status. Many donors, foundations, and other organizations require nonprofit determination letters to prove their status as tax-exempt.
Form 1023-EZ is a shorter version of Form 1023, and it’s only for small organizations with less than $50,000 in gross receipts and assets less than $250,000.
Form 1023 asks many questions regarding nonprofit compliance. Nonprofits should be careful in providing answers to the questions, as the wrong answers can raise issues that the organization may eventually be required to address. Nonprofit organizations often utilize the services of a nonprofit attorney to ensure that the nonprofit complies with the law.