By On Call Attorney Maxwell Charles Livingston

If you're running a business that is operated for the charitable, religious, artistic, educational, political, scientific, or similar public benefit and you will have no shareholders, you may want to consider applying for tax-exempt status. Here are the basics you need to know:

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1. Incorporate Your Business

The IRS will typically require you to incorporate your business with the appropriate governmental agency (e.g. Department of Financial Institutions in Wisconsin) before applying to be recognized by the Federal Government as a nonprofit. Most traditionally, you will need to apply with a state agency with an appropriate designation, and attach the required fee to your Articles of Incorporation. In Wisconsin, the most appropriate form is a Non-Stock Corporation, covered under Chapter 181 of the Wisconsin Statutes, and requiring a filing fee of $35. In some other states the designation will be Not-for-Profit, though other forms, including other corporations, associations, and cooperatives may qualify. To be a nonprofit, you will need to include a proper "purpose" section in your Articles of Incorporation (i.e. that you are organized for charitable, religious, scientific, and/or educational purposes). And, you will need to include a proper dissolution clause in your Articles of Incorporation (i.e. that upon dissolving, your assets must be used exclusively for exempt purposes, such as charitable, religious, scientific, and/or educational purposes).

2. Get an Employer Id Number ("EIN")

The IRS will require you to have an EIN prior to applying to become tax exempt. It is easy to get an EIN online, and can be done in mere minutes. Apply online with the IRS.

3. Apply for 1023 Tax Exemption

The 1023 application is long and exhaustive. However, if you fill everything in correctly, and appropriately attach documentation, you should be approved within about four months of applying.  When you apply, you will need to send in completed materials with either a payment of $400 if you don't or will not average $10,000 over the next four years, or $850 if you will (if you send in $400 and you end up averaging over $10,000 per year, you can always pay the difference to the IRS). This needs to be sent to Internal Revenue Service, P.O. Box 192, Covington, KY 41012-0192 in the following order:

  • Form 1023 - Checklist: This is included in the last two ("2") pages of form 1023 itself and must be filled out and placed first in the completed application.
  • Form 2848 - Power of Attorney and Declaration of Representative: This doesn't necessarily have to be completed. It only must be completed when an organization will have a third party (typically an attorney) receiving on its behalf. If so, you can get Form 2848 at the IRS website.
  • Form 8821 - Tax Information Authorization: This doesn't necessarily have to be completed. It's only mandatory when an organization is represented for tax purposes by a third party. If so, you can get Form 8821 at the IRS website
  • Expedite Request: This doesn't necessarily have to be completed. If an organization wishes to have a quicker review process AND it is aware of at least one major donor who would donate to its organization but for the delay, it can make an expedite request. If it applies, the expedite request would be placed here in the application, after the 8821 form.
  • 1023 Application Itself: This is required, and must be fully completed in all relevant parts. For the financial portions, you must estimate budgets if you are a new organization. To estimate a budget, the Organization would fill out EITHER for the 3 prior years (if you have three years of finances) or the current year and the two years following it. The "application itself" is the combination of the 1023 itself and relevant schedules (A through H). The schedules explain what type of organization is applying (e.g. a school, a church, or a general public charity). Only the relevant schedule(s) must be completed.
  • Articles of Organization: This is required. For most organizations, this means "articles of incorporation".
  • Amendment(s) of Articles of Organization: All amendments to the Articles of incorporation/organization are required to be included by the organization chronologically.
  • Bylaws or Other Rules of Operation: This is required. Bylaws amendments do not need to be included here, just the current bylaws or other such rules of operation(s).
  • Documentation of Non-Discriminatory Policy(ies): This is required in Schedule B to all organizations to which Schedule B applies, which means that only schools must complete this.
  • Form 5768: Election to Influence Legislation: Only a small minority of 501(c)(3) organizations will even desire to influence legislation let alone formally vote to do so. If yours does, you must include form 5768 in the application after the Documentation of Non-Discriminatory Policy (if there is no Documentation of Non-Discriminatory Policy, form 5768 would come after the bylaws). Form 5768 can be found here.
  • Attachments: Your Attachments should be attached to the Application and ordered last in the application.  
    • Formatting: Your Attachments should have a header which corresponds to the question number, beginning on the left with "Form 1023 | Attachment |". Then, directly to the right should be the "Organization Name " in italics. Following that should be " | Organization EIN Number" followed by "Line Number" of the question. For example, the fundraising attachment is line 4a; it would look something like the following:

              Form 1023 | Attachment | Organization Name | Organization EIN Line 4a

      • If you want to get extra fancy, immediately below the top part of the header above, but still in the header itself, copy and paste the part for the referenced question from the 1023 application itself. For example:
    • Attachments that should ALWAYS be completed include "Duties and Qualifications (part V. 3a.) and "Narrative Description" (part IV). The headings for those categories should be formatted as per above. But, every attachment which applies to your organization in any way should be completed. If you have more officers than provided for, or want to add to your answer to any question from the 1023 application in any way, you can draft a page formatted as the attachments are above and include it directly behind the question itself.

Keep in mind that these are just basic guidelines. Deciding whether or not to become a nonprofit organization is an important decision, and applying is not always so easy, so it's always best to speak to a business lawyer before proceeding.

Maxwell LivingstonMaxwell Charles Livingston is a Wisconsin lawyer based in Brookfield, Wisconsin, or in the suburbs of Milwaukee, Wisconsin. Living by the motto "relentless.respectful.results", Max takes a variety of transactional and litigation cases throughout Southeastern Wisconsin, focusing on business, nonprofit, real estate, family, and estate planning cases. Max is licensed in all state and federal Wisconsin Courts, including in all Wisconsin bankruptcy courts.

Get started Start Your Non-Profit Answer some questions. We’ll take care of the rest.

Get started Start Your Non-Profit Answer some questions. We’ll take care of the rest.