Form 1023
Preparation Assistant

1. About This Tool

Form 1023 (or its shorter cousin, Form 1023-EZ) is the federal application that converts a state-incorporated nonprofit into a federally tax-exempt 501(c)(3). Without an approved 1023 or 1023-EZ, your organization can incorporate, hold board meetings, and even accept donations — but those donations are not tax-deductible to donors, and the organization itself is technically a taxable entity. Federal tax exemption changes everything for fundraising and operations.

The application is complex enough that most new nonprofits hire a CPA or attorney to prepare it ($1,500-$5,000 for the full Form 1023; $500-$1,500 for Form 1023-EZ). Self-preparation is possible — and often the right choice for small organizations applying for Form 1023-EZ — but the cost of getting it wrong is high: a rejected or delayed application can mean months or years of lost fundraising momentum.

The Form 1023 Preparation Assistant doesn't file the application for you. It produces the source materials, calculations, and supporting narrative that you (or your CPA/attorney) will use to complete the actual filing. Run the tools 30-60 days before you submit. The outputs should reduce your preparer's billable hours significantly and catch issues before they become IRS follow-up questions.

2. Getting Started

Who this is for

• Founders of new nonprofits preparing to submit their federal exemption application
• Executive Directors at orgs that incorporated some time ago but haven't yet filed for federal exemption
• Board treasurers and finance committee members overseeing the application process
• CPAs and nonprofit attorneys wanting a client-prep package that organizes the inputs they'll work with
• Nonprofit consultants guiding multiple founder clients through formation

What you'll need to complete the org profile (5-10 minutes)

• Organization legal name, EIN (or "not yet obtained"), state of incorporation, fiscal year end, mission statement
• Formation status: incorporated yet? Articles include 501(c)(3) language? Bylaws drafted? Initial board meeting held?
• Financial projections: gross receipts in each of next 3 years, total assets at end of year 3, employee count in year 1
• Entity type: standard 501(c)(3) public charity, or one of the special types (church, school, hospital, supporting org, private foundation, successor to for-profit)
• Activities profile: brief description, lobbying plans, insider compensation arrangements, foreign activities, prior exempt status history

What you'll need before filing (the application itself)

The application requires materials you should have ready BEFORE you start the online form:

• EIN from the IRS (free, ~15 min at irs.gov)
• Articles of Incorporation filed with your state, including all five required 501(c)(3) provisions (Governing Documents Checklist verifies)
• Bylaws drafted and adopted by the initial board
• Initial organizational meeting minutes showing board election, bylaws adoption, officer appointment
• Conflict of Interest Policy (recommended; sample in 1023 Appendix A)
• pay.gov account (free; the application is filed online here)
• User fee budgeted: $275 for 1023-EZ, $600 for full 1023
• For full 1023: narrative description of activities (use Narrative Builder), 3-year financial projections (use Financial Projections Worksheet), compensation arrangements documented

3. Onboarding Wizard

The wizard runs once and saves to your browser. You can re-run or update the profile any time from the dashboard.

Step 1 — Organization Basics

Legal name, EIN, state, fiscal year end, year founded/incorporated, mission statement. These appear as merge fields throughout the generated documents. Use legal name exactly as it appears on your Articles of Incorporation.

Step 2 — Formation Status

Where you are in the formation process: incorporated yet, EIN obtained, articles include 501(c)(3) language, bylaws drafted, initial organizational meeting held. These responses shape which Filing Determination tool messaging applies (e.g., "Get EIN first" vs "Verify article language" vs "Ready to file").

Step 3 — Financial Projections

Year 1, 2, and 3 projected gross receipts plus year 3 total assets. These drive the 1023-EZ eligibility test:

• If gross receipts will exceed $50,000 in ANY of next 3 years ⇒ must file full 1023
• If total assets will exceed $250,000 ⇒ must file full 1023
• Otherwise ⇒ 1023-EZ may be available (subject to entity type and other conditions)

Step 4 — Entity Type / Special Status

Certain entity types cannot use Form 1023-EZ regardless of size: churches, schools, hospitals, 509(a)(3) supporting organizations, private foundations, private operating foundations, successors to for-profit entities. Pick the one that best describes you. If you're a "standard 501(c)(3) public charity" (which most new nonprofits are), the 1023-EZ path remains open if you meet financial thresholds.

Step 5 — Activities & Restrictions

Brief activity profile plus a few specific eligibility questions: lobbying plans, insider compensation arrangements, foreign activities, prior exempt status history. These help the Eligibility Wizard surface the right disqualifying factors.

4. Using the Generators

Seven generators in three categories. The dashboard auto-detects whether you should focus on the Lite-suite tools (1023-EZ path) or use the Full-suite tools as well (1023 full path).

Recommended order for 1023-EZ filers

1. Eligibility Wizard — confirm you can file 1023-EZ (the most common surprise: large planned gift in year 3 makes you ineligible)
2. Form Selector & Roadmap — review the pre-filing checklist; calendar your filing date
3. Governing Documents Checklist — verify articles include all five required provisions; amend if needed BEFORE filing
4. Form 1023-EZ Worksheet — prepare all responses BEFORE opening pay.gov (form can't save drafts)
5. Open pay.gov; transfer prepared responses; pay $275; submit

Recommended order for full Form 1023 filers

1. Eligibility Wizard — confirms full 1023 is required (often automatic from entity type or size)
2. Form Selector & Roadmap — full 1023 timeline is 3-9+ months; plan accordingly
3. Governing Documents Checklist — same verification as 1023-EZ filers; required for all 1023 applications
4. Public Charity Classification Selector — pick your 509(a)(1) or 509(a)(2) classification with revenue-mix analysis
5. Form 1023 Narrative Builder — structured What/Who/Where/Why/How framework; generates a draft narrative
6. Financial Projections Worksheet — 3-year P&L plus balance sheet, with reasonableness checks
7. Engage CPA or attorney for application review before submission (highly recommended for full 1023)
8. Submit at pay.gov; pay $600; respond to any IRS additional information requests within 60 days

5. Exporting Documents

Three export options on every generator:

• Download as Word (.docx) — formatted with headings, bullets, and the BYC document style. Default for documents going to your CPA, attorney, or board.
• Download as HTML — for posting on a private intranet or sending as an email attachment.
• Copy to Clipboard — plain text with Markdown-style emphasis. Useful when pasting into a board portal, Google Docs, or your CPA's workpaper template.

6. Form 1023 vs Form 1023-EZ

Most new 501(c)(3) applicants qualify for one or the other. The choice is largely driven by org size and entity type — not preference.

Who can use Form 1023-EZ

All four conditions must be true:

1. Projected annual gross receipts ≤ $50,000 in any of the next 3 years (AND past 3 years actual receipts ≤ $50,000 each)
2. Total assets ≤ $250,000
3. Not a church, school, hospital, supporting organization, private foundation, or other excluded entity type
4. Not seeking retroactive reinstatement after auto-revocation

Plus about 15 other operational conditions (no donor-advised funds, no foreign activities, etc.). The Eligibility Wizard walks through the most common disqualifiers.

Who must use the full Form 1023

• Organizations expecting to exceed $50,000 in gross receipts (or $250,000 in assets) in any of the next 3 years
• Churches, schools, hospitals, medical research orgs (automatic public charity status; cannot use EZ)
• 509(a)(3) supporting organizations (all three types)
• Private foundations and private operating foundations
• Successors to for-profit entities
• Organizations seeking retroactive reinstatement after auto-revocation
• Organizations with donor-advised funds
• Foreign organizations

The "should I use EZ even if eligible" question

Some founders ask whether they should file the full Form 1023 even when eligible for the EZ — on the theory that the longer application produces a stronger determination letter or signals "real organization" to funders. Generally no. The EZ determination letter is functionally identical to the full 1023 determination letter. Funders look at the determination letter and the EIN; they don't ask which form was used. Use the EZ if you qualify — save the $325 fee difference and the months of waiting time.

7. The Five Required Articles Provisions

Both Form 1023 and Form 1023-EZ require that your Articles of Incorporation include five specific provisions. Without them, the IRS will reject the application. The Governing Documents Checklist tool verifies each, but here's the deeper context.

1. Purpose Clause

The Articles must state that the corporation is organized exclusively for one or more 501(c)(3) exempt purposes (charitable, religious, educational, scientific, literary, public safety testing, amateur sports, or prevention of cruelty to children/animals). Vague mission language ("to make the world better") does not suffice.

IRS-suggested language: "This corporation is organized exclusively for charitable, religious, educational, and scientific purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code, or corresponding section of any future federal tax code."

2. Dissolution Clause

The Articles must state that upon dissolution of the corporation, all remaining assets will be distributed to another 501(c)(3) organization or to a federal/state/local government for a public purpose. This is the most commonly missing provision — some state nonprofit corporation laws don't require it, so first-time founders skip it. The IRS requires it regardless of state law.

IRS-suggested language: "Upon the dissolution of the corporation, assets shall be distributed for one or more exempt purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code, or corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose."

3. Inurement Prohibition

The Articles must state that no part of the net earnings will inure to the benefit of members, trustees, officers, or other private persons (except reasonable compensation for services rendered).

IRS-suggested language: "No part of the net earnings of the corporation shall inure to the benefit of, or be distributable to, its members, trustees, officers, or other private persons, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered."

4. Political Activity Prohibition

The Articles must state that the corporation will not participate in any political campaign on behalf of (or in opposition to) any candidate for public office. This is an absolute prohibition for 501(c)(3) organizations — not even insubstantial political campaign activity is permitted. (Lobbying is a separate, more permissive rule.)

IRS-suggested language: "The corporation shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office."

5. Lobbying Limitation

The Articles must state that no substantial part of the activities will be carrying on propaganda or otherwise attempting to influence legislation. Some lobbying is permitted for 501(c)(3) organizations as long as it's an "insubstantial part" of activities — this provision codifies the limit.

IRS-suggested language: "No substantial part of the activities of the corporation shall be the carrying on of propaganda, or otherwise attempting to influence legislation, except as otherwise provided by Section 501(h) of the Internal Revenue Code."

Recommended (not required by IRS, but expected)

• Conflict of Interest Policy: Form 1023 explicitly asks whether your org has adopted one. The IRS provides a sample policy in Form 1023 Appendix A. Strongly recommend adopting before filing.
• Bylaws: Required for full 1023 filings (uploaded as part of the application). Not uploaded with 1023-EZ but should still be adopted before filing.
• Initial organizational meeting minutes: Documents that the board was duly elected, bylaws were adopted, officers were appointed.

8. Public Charity Classification

Form 1023 Part VII (and 1023-EZ Part IV) requires you to elect a foundation classification. Most new public charities choose between two options. Choosing wrong doesn't disqualify you — but it can affect future public support test calculations and operating constraints.

509(a)(1) and 170(b)(1)(A)(vi) — Donative Public Charity

For organizations supported primarily by donations from the general public, foundations, and governmental units. The "1/3 public support test" requires at least 33⅓% of total support to come from public sources over a 5-year rolling window (with a 2% per-donor cap on individual contributions). Most donation-driven nonprofits choose this.

509(a)(2) — Service Revenue Public Charity

For organizations supported primarily by gross receipts from exempt-purpose program services (admission fees, tuition, ticket sales, etc.). The 509(a)(2) test has two prongs: (a) more than 33⅓% from public sources + qualifying program revenue, and (b) no more than 33⅓% from investment income and unrelated business income. Most service-providing nonprofits choose this.

509(a)(3) — Supporting Organization

For organizations operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more 501(c)(3) public charities. Three types (Type I, II, III) with different control relationships. The IRS scrutinizes 509(a)(3) classifications carefully — this requires attorney review before electing.

Private Foundation (default)

If you don't qualify as a public charity, you're a private foundation by default. Private foundations face significantly more compliance burden: Form 990-PF annually, 5% mandatory distribution requirement, 1.39% excise tax on net investment income, self-dealing prohibitions, jeopardizing investment restrictions, excess business holdings limits. Most new nonprofits prefer to avoid this classification.

The 5-year advance ruling period

Since 2008, new public charities automatically receive a 5-year window to meet their chosen public support test. The IRS evaluates support at the end of year 5. If you don't meet the test, you can: (a) request the facts-and-circumstances test, (b) restructure operations, or (c) accept reclassification as a private foundation. The Public Charity Classification Selector tool helps you choose a classification you can defensibly meet by year 5.

9. Writing a Strong Narrative Description

Form 1023 Part IV asks for a "complete and detailed narrative description of past, present, and planned activities." This is the most important section of the application. IRS exempt organization specialists read the narrative more carefully than any other part — it's how they evaluate whether your activities actually qualify as exempt under 501(c)(3).

What makes a strong narrative

• Specific: Names places, populations, programs, methods, schedules. "Provide weekly 90-minute math tutoring to K-8 students at Lincoln Elementary" beats "Help children learn."
• Comprehensive: Covers what, who, where, when, why (exempt purpose link), and how (funded)
• Realistic: Doesn't promise more than the organization can deliver in the realistic timeframe
• Exempt-purpose-linked: Each program description explicitly ties to a 501(c)(3) exempt purpose
• Quantified where possible: Number served, hours provided, dollars granted
• Past/present/future structure: If you have any operating history, describe what you've done; describe current operations; describe planned future activities

The Narrative Builder framework

For each program/activity, the BYC Narrative Builder walks you through:

1. What you do (the specific activities, in action verbs)
2. Who you serve (population, demographics, eligibility criteria)
3. Where you operate (geography, specific locations)
4. When (frequency, duration, schedule)
5. Why this qualifies as exempt (link to exempt purpose category)
6. How funded (revenue sources for the program)

Common narrative mistakes

• Too vague: "Empower communities" or "create positive change" describes nothing concrete
• Marketing copy: Marketing language often sounds vague to an IRS examiner
• Burying the exempt purpose: The exempt purpose connection should be explicit in each program description, not assumed
• Aspirational without plan: Vague future plans without dates or budgets raise questions
• Forgetting fundraising disclosure: All fundraising methods must be described (events, direct mail, online, grants, etc.)
• Promising things you can't keep: The application binds you to operate as described — the IRS compares to actual 990s in future years

Length expectations

Typical narrative length: 2-5 pages double-spaced for a small or mid-sized organization. Less than 1 page raises questions; more than 10 pages may suggest disorganization. Focus on quality over volume.

10. Financial Projections (Part IX)

Form 1023 Part IX requires 3 years of financial data: actual for any completed years plus projections for remaining years. The IRS uses these figures to evaluate (1) reasonable compensation, (2) program-to-administrative expense ratios, (3) public support test viability, and (4) general organizational sustainability.

Required line items

Revenue: contributions and grants, membership fees, gross investment income, net unrelated business income, gross receipts from program services, other revenue.

Expenses: compensation to officers/directors/trustees, other salaries and wages, interest, occupancy, professional fees, contributions/grants paid out, fundraising expenses, other expenses.

Balance sheet (most recent year-end): cash, accounts/pledges receivable, investments, property & equipment, other assets, total liabilities. Net assets calculated as total assets minus total liabilities.

What IRS examiners look for

• Internal consistency: Do revenue projections match the narrative? If you describe direct services, do you show program service revenue or just donations?
• Reasonable compensation: Are officer/director salaries reasonable for the role and org size?
  • For new small orgs: often $0 (founders volunteer)
  • For mid-size orgs (~$200K revenue): ED comp typically $50-90K
  • Above $500K revenue: more variable, but defensible to comparable salary data
• Realistic growth: Does growth match the operational plan and committed funding? Aggressive growth (25%+ YoY) requires justification.
• Public support viability: Will the revenue mix satisfy the chosen public charity classification's support test by year 5?
• Program vs admin balance: Are program expenses meaningful relative to overhead? Watchdogs use 65% program expense as a typical floor.

Reasonableness checks built into the BYC tool

The Financial Projections Worksheet flags patterns that may invite IRS questions:

• Compensation greater than 70% of revenue (likely raises reasonable comp questions)
• Fundraising greater than 30% of revenue (high; requires explanation)
• Year-over-year growth greater than 200% (aggressive; needs justification)
• Large unexplained surpluses (may suggest insufficient program activity)
• Operating losses greater than 25% of revenue (sustainability concern)

Build projections conservatively

Many founders project aggressive growth to "look successful" on the application. This usually backfires. The IRS may grant exemption based on optimistic projections, but the projections become a comparison point for future 990 filings. If actual results substantially undershoot projections for several years, the IRS may revisit the exemption determination. Better to project realistically and overdeliver.

11. Timeline & What to Expect

Form 1023-EZ timeline

• Week 1: Complete pre-filing checklist; run BYC 1023-EZ Worksheet to prepare responses
• Week 2: Log into pay.gov, open 1023-EZ form, transfer prepared responses, pay $275 user fee, submit
• Weeks 3-6: IRS reviews; may approve, request additional information, or (rarely) issue proposed adverse determination
• After approval: File Form 990-N annually; register with state charity regulator; comply with public disclosure requirements

Form 1023 (full) timeline

• Months 1-2: Complete pre-filing checklist; draft narrative description; build financial projections; finalize public charity classification
• Month 3: Review draft application with board; engage CPA or attorney for review (strongly recommended for full 1023)
• Month 4: Submit Form 1023 via pay.gov, pay $600 user fee
• Months 5-9: IRS review. Common: IRS issues "request for additional information" letter (typically 60 days to respond)
• Months 6-12+: IRS issues Determination Letter (favorable, adverse, or proposed adverse)
• After approval: File Form 990 or 990-EZ annually; register with state charity regulator; ongoing compliance

Determination Letter outcomes

• Favorable: You're tax-exempt. Effective date is typically date of formation if filed within 27 months; otherwise date of filing.
• Request for additional information: IRS asks for clarification or additional documents. You typically have 60 days to respond — missing the deadline closes your application.
• Proposed adverse determination: IRS believes you don't qualify. You have 30 days to request a conference or submit additional information.

Expedited review

The IRS does not generally offer expedited review. Limited exceptions: grants with specific deadlines, hardship circumstances, IRS error. To request expedited handling, attach a letter to the application explaining the urgency and the specific timeline. Most requests are denied. The best strategy for fast approval is filing a complete and accurate application from the start — avoiding follow-up requests that add 60-120 days.

12. Common Pitfalls

Submitting without EIN

The IRS rejects any application without an EIN. Get yours BEFORE starting the application — free online at irs.gov, immediate issuance.

Articles missing required 501(c)(3) language

The single most common reason 1023 applications are rejected or delayed. State boilerplate Articles often omit some or all of the five required provisions. Amend before filing, not after.

Vague narrative description

Marketing-style language ("empowering communities", "creating change") doesn't satisfy the IRS. Use specific verbs, named populations, concrete locations, measurable activities.

Aggressive financial projections

Optimistic projections may get the application approved, but they become a comparison point against actual 990 filings. Material undershoots can trigger IRS examination of the original exemption.

Inappropriate public charity classification

Choosing 509(a)(1) when your revenue is mostly program fees, or 509(a)(2) when you're donation-driven, sets you up to fail the public support test by year 5. Choose based on actual projected revenue mix.

Filing 1023-EZ when you're not eligible

The IRS audits 1023-EZ approvals randomly. If they determine you weren't eligible (e.g., projected revenue exceeded $50K, or you fall into a disqualified entity type), they can revoke exemption and require you to refile via full 1023.

Underestimating the full 1023 effort

The full Form 1023 is genuinely complex. Self-preparation is possible but typically takes 30-50 hours of focused work. CPA or attorney engagement costs $1,500-$5,000 but reduces preparation time and improves approval odds.

Missing the 27-month retroactive window

If you file within 27 months of incorporation, tax-exempt status is retroactive to formation date. Donations during the pre-filing period are tax-deductible. File late and you may lose retroactive status — donations between formation and filing date aren't deductible, and the IRS may impose income tax on the period.

Forgetting state-level requirements

Federal 501(c)(3) status does NOT exempt you from state-level requirements. Most states require: separate state charity registration (annual), state corporate income tax exemption (separate application), state sales/use tax exemption (separate application where available). Each state has different procedures and timelines.

13. After Approval — Ongoing Compliance

Receiving your Determination Letter is the beginning of compliance, not the end. The IRS, your state, and your funders all have ongoing expectations.

First-year actions

• Frame and display your Determination Letter prominently
• Send a copy to current donors and update fundraising materials
• Register with state charity regulator if you solicit donations (most states require this)
• Apply for state corporate income tax exemption (separate application; varies by state)
• Apply for state sales/use tax exemption if available (varies by state — some states never grant it)
• Register with property tax assessor if you own or lease property (some states grant exemption)
• Update GuideStar/Candid profile (free; affects funder discoverability)
• Consider Charity Navigator and BBB Wise Giving Alliance registration once revenue thresholds met

Annual federal compliance

• Form 990, 990-EZ, or 990-N annually (the BYC Form 990 Preparation Assistant helps with this when you grow into 990-EZ or full 990)
• Form 990-T if you have $1,000+ of unrelated business income
• Public disclosure: Form 990 and Form 1023 must be available for public inspection on request

Annual state compliance

• State charity registration renewal (annual in most states; some require audited financials)
• State corporate registration renewal (annual)
• Annual minutes documenting board meetings
• Conflict of Interest annual disclosures

Triggers for IRS attention after approval

• Material changes in activities from what was described in the 1023 — report on Schedule O of Form 990
• Substantial growth or contraction in revenue
• Engagement in lobbying or political activity
• Material transactions with insiders (Schedule L)
• Failure to meet public support test by end of advance ruling period
• 3 consecutive years of non-filing = automatic revocation

Administrator Access

This app supports a separate Administrator role with elevated permissions. The administrator can view all user accounts, reset application data, and perform setup tasks.

First-Time Setup

From the sign-in screen, click Administrator Access in the side links below the Sign In button. On first use, you will be asked to set a password (enter once, confirm once). This password is stored as a hash in your browser's local storage — the actual password is never stored in cleartext.

Subsequent Sign-In

After setup, the Administrator Access link prompts only for the password. Successful sign-in lands you on the dashboard with administrative privileges enabled (synthetic user admin@local, isSuperAdmin: true).

Forgot the Admin Password?

The password is stored locally in your browser and cannot be recovered. To reset, sign in as any regular user, open the Admin Settings page if you have admin privileges, and use Reset All Data. This clears all application data including the admin password hash, allowing you to set a new one. Be aware that this also clears all generated documents and user accounts — export anything you want to keep first.

Contact & Support

This Form 1023 Preparation Assistant is part of Build Your Club Academy — a growing library of self-service apps and learning content for small nonprofit organizations. We are nonprofit board members ourselves, building the tools we wished existed when we started.

Build Your Club's nonprofit lifecycle tools

• Nonprofit Formation Assistant (free; part of the platform) — covers state incorporation through state registration. Use this BEFORE the Form 1023 Preparation Assistant.
• Form 1023 Preparation Assistant (this app, $79) — the federal IRS application step. Comes after state incorporation.
• Form 990 Preparation Assistant ($79) — the annual federal filing once you're exempt. Use every year after approval.
• Document Retention & Security Policy Generator ($29) — policies referenced in Form 990 Part VI.
• Nonprofit Employment & HR Policy Generator ($99) — once you have employees.
• Risk Management & Insurance Audit ($79) — D&O insurance, risk register, crisis plan.
• All Build Your Club apps — the full app library.

Questions, suggestions, bug reports

We read every message and incorporate feedback into the tools. Reach us through the contact form on buildyourclubacademy.org or via the support links on the main BYC site.

Important disclaimers

This tool generates document drafts and walkthroughs based on widely-applicable Form 1023 / 1023-EZ rules. It is not tax advice, not legal advice, and does not establish a CPA-client or attorney-client relationship. Form 1023 rules are detailed and edge cases (special entity types, group rulings, foreign affiliates, supporting organization classifications, retroactive reinstatement) may produce different answers than this tool's general logic. The full Form 1023 in particular benefits substantially from CPA or attorney review before submission. The Build Your Club Academy is not responsible for filing decisions, IRS determinations, or other consequences arising from use of the outputs.

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