Form 1023 - Application for Recognition of Exemption

            Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, is used for exactly what it says.  It is for the purpose of an organization applying for tax-exempt status, meaning exemption from federal income tax.  Some types of organizations that would be eligible to file Form 1023 are organizations organized and operated solely for charitable, religious, literary, scientific, testing for public safety, or educational purposes.  Also eligible are organizations with the purpose of fostering national or international amateur sports competition, and organizations operating with the purpose of the prevention of cruelty to children or animals.

            Some organizations do not need to file Form 1023 to gain tax-exempt status.  These include churches, synagogues, temples, and mosques; integrated auxiliaries of churches; conventions and associations of churches; and any organization with standard gross receipts each year of $5,000 or less.  These organizations may still file Form 1023 for the purpose of receiving a determination letter that verifies their tax-exempt status, and also states whether contributions to their organization are tax deductible.

           In order for an organization to qualify as exempt from federal income tax under section 501(c)(3), two essential elements must be satisfied.  The organization has to be organized and operated solely for one or more exempt purposes.  It needs to be organized as either a corporation, a trust, or an unincorporated association.  There must be wording in the organizing document limiting the purpose of the organization, and also permanently dedicating the assets of the organization to be used for exempt purposes.

            The organization needs to be operated for the purpose of furthering one or more of the stated exempt purposes from the organizing document.  Some specific activities are restricted or prohibited.  These include participating in any political campaigns; unjustly enriching board members, officers, or any other insiders; furthering non-exempt purposes more than negligibly; operating mainly for the primary purpose of engaging in a trade or business which is not related to the exempt purposes of the organization; and taking part in illegal activities, or those that violate basic public policy.

            The completion of Form 990 provides the IRS with pertinent information about the organization, so a determination can be made regarding tax-exempt status.  There are several questions to be answered, dealing with the past, present, and future planned activities of the organization.  Also included is financial information about the organization.  Financial data can be given in either budgeted or actual amounts, depending on the specific circumstances involved. 

             Once the IRS has reviewed the Form 1023 and considered the request, if approved, a determination letter will be issued.  The letter gives written assurance regarding the organization’s tax-exempt status, as well as if the organization is qualified to receive tax-deductible charitable contributions.  Further, each qualified tax-exempt organization will be classified as either a private foundation or a public charity.

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