Ready to file your Form 1023 application?

Before you get too far into the process, check out these common mistakes that often cost founders time and money.

Knowledge applied is powerful and we want you to be in the best position to launch your mission-driven organization. Read on to see the common mistakes and how you can avoid them.

Mistake 1: Missing IRS Required Language in Your Articles of Incorporation

I know you know that starting a nonprofit is a 3-step process. While setting up a nonprofit corporation is a matter of state law, the IRS still wants to see you Articles of Incorporation and ensure they comply with the IRS’ requirements for tax-exempt status.

Before you submit what you filed with the state, make sure you included the IRS’ required provisions! Founders often waste time (and money) having to amend their Articles of Incorporation because their initial filing did not include all of the proper provisions. This typically happens when you use your state’s form language for the Articles of Incorporation. Your state’s form language is perfect for your state but not always compliant with the IRS.

Tip: Before you file with the state, make sure you have the IRS required language. If you already filed with the state, you MUST amend your Articles of Incorporation before you file your Form 1023. Failure to do so will cause a completely avoidable delay.

Mistake 2: Having Too Few People (or Closely Related Individuals) on Your Board

Most states only require you to have 3 people on your board. Three is a great starting place…but depending on the caliber of work you are doing and the impact you intend to make, this may raise the examiner’s eyebrow. You don’t want to get a question back about whether your board has the capacity to run the organization. Remember, it’s a huge privilege to be tax-exempt, so the IRS doesn’t want to give that to any ole organization. So make sure you have a sufficient number of board members.

And on that topic. . .

In some states, you can skate through the incorporation process by listing yourself three times…we do not recommend. Or, you can pull together a board with me and you, your mama and your cousins too. The issue – particularly if you are looking to a be 501(c)(3) charity organization – the organization looks closely-held. This raises the examiner’s scrutiny. They do not want to approve a family business where there might be self-dealing or private inurement (gaining more benefit than you provide).

Tip: Get your board together early. Make sure you have at least 5 members who are qualified to run your organization and do not all share the same last name.

Mistake 3: Providing Too Little (or Too Much) Info in Your Narrative Description

Your narrative description matters. This is where you explain your exempt purpose, what you plan to do, who will do it and how much time and resources will be allocated to what. This is the Goldilocks portion of your application. You want to give just enough information. Too little info will lead to endless questions from the IRS. Too much info, gives the examiner the opportunity to be confused or find fault.

Tip: Answer the questions in the prompt completely and concisely and have a friend or colleague review it. If they have a bunch of questions – revise.

Bonus Mistake: Not Budgeting Enough Time to Apply (and Get Approved)

Fast means something completely different when you are dealing with the IRS. Currently, it is taking anywhere from 6-9 months for the IRS to review a standard application and send the determination letter. Yes, there are ways to expedite the process. Even still, you are still looking at 3-4 months. So, plan accordingly. The longer you wait to start the process, the longer it takes to get your status and start fundraising and collecting charitable contributions.

Tip: Start now and do it right. If you need an expedited application, contact a trained professional (like us!) so you don’t miss out on any dollars or cents.

Ready to file your 1023 but want a bit more support.

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The Effiong Firm LLC is on a mission to launch 60 women- or BIPOC-led mission-driven organizations that contribute to the educational, health/wellness, or economic development of historically marginalized communities. Let’s partner!