Changes to Form 1023, Application for Tax Exemption under Section 501(c)(3)

News broke in early 2020 that the application for exemption under Section 501(c)(3), more commonly known as Form 1023, would be changing over to an online submission system. Revenue Procedure 2020-08 allowed for a 90-day transition period to the online filing process, which also incorporates a makeover of Form 1023.

Notable changes include:

  • Applicants are asked to provide an NTEE Code that best describes their activities, but may also request the IRS to select the code instead.
  • Sample grant applications are no longer required. Applicants are instead asked to provide information that includes to whom the grants will be made (charitable or non-501(c)(3) recipients), whether pre-grant inquiries and monitoring will be used, and/or if the recipient will be a foreign organization.
  • Applicants are asked whether they will operate in a foreign country or if they sponsor donor-advised funds.
  • New questions expand upon joint ventures and conflicts of interest with regard to family members.
  • With regard to churches, applicants are no longer asked about their formal codes of doctrine and discipline, or for copies of literature or church bulletins.
  • Applicant schools do not need to submit materials related to racially nondiscriminatory policies
  • Hospitals and medical research applicants are asked revised questions regarding free and below-cost service offerings. They are also not required to submit any related policies.
  • Applicants requesting retroactive reinstatement are asked to demonstrate how they “acted reasonably and in good faith,” and provide details surrounding the request for an earlier exemption effective date.
  • For applicants providing low-income housing, Schedule F has been revised to remove reference to housing for the elderly or handicapped.
  • Successors to other organizations are no longer asked if the predecessor had previously requested tax exemption or had an exemption revoked or suspended.
  • Applicants that provide scholarships, fellowships, educational loans or other educations grants are no longer asked about the terms of such loans or about details regarding the number and amount of loans or grants. Applicants also need not provide sample materials or sample loan applications.
  • Applicants are no longer asked:
    • whether they accept vehicle, boat, plane or similar donations;
    • specific questions about bingo and gaming revenue, as well as states and jurisdictions of fundraising;
    • whether they are affiliated with a governmental unit, engage in economic development or if they are a charitable risk pool; or
    • whether they are claiming exemption as a childcare organization or cooperative service organization of operating educational organizations.

The Pay.gov website guides users page-by-page through the Form 1023, directing applicants only to sections applicable to the questions they’ve answered. To see a preview of the revised Form 1023 with all schedules, visit https://www.pay.gov/public/form/preview/pdf/101

If you have any questions on the updated Form 1023, please contact any of our exempt organization experts.

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The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2020 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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