Get Nonprofit Tax-Exempt Status | Historic Preservation | Wisconsin Historical Society

Guide or Instruction

How to Obtain Tax-Exempt Status for Your New Nonprofit Organization

Get Nonprofit Tax-Exempt Status | Historic Preservation | Wisconsin Historical Society

If you want your educational or advocacy group to be considered a nonprofit organization for tax purposes, you must apply for tax-exempt status with the IRS. You apply for this status using IRS Form 1023. However, before you can apply, you must create your organization and file your articles of incorporation with the Wisconsin Department of Financial Institutions (DFI).

Note that if your group does not become a tax-exempt organization, your group will not be able to apply for grants from most foundations.

Filing IRS Form 1023

To apply for tax-exempt status with the IRS, you can download a copy of IRS Form 1023 from the IRS website. You also have the option to fill in the form online and save a copy for your records. You must also pay a filing fee.

Form 1023 should be submitted within 27 months of the date you file your organization's articles of incorporation. If you file during this time period and your tax-exemption request is accepted, your organization's tax-exempt status will apply from the date you filed your articles of incorporation. If you file Form 1023 later than the 27-month period, your tax-exempt status will begin on the postmark date of your IRS filing.

Form 1023 is a bit complicated, so your organization may choose to have an experienced tax attorney or a certified public accountant complete it. This can add substantially to your costs, but the time and difficulty you save may outweigh the extra costs. Your organization may be able to get pro bono assistance with this task. Even if you get help from a professional, you should understand IRS Form 1023's basic requirements and the timeline for the application process.

Learn more about filing for tax-exempt status and the Application for Recognition of Exemption on the IRS website.

Required Information for IRS Form 1023

Form 1023 requires information about your organization such as your history, financial information, organizational structure, governance policies, and operations. Here is a summary of Form 1023's required elements:

Organization Type

You must identify your organization's type. Most conventional nonprofits are a corporation. Incorporation protects the individuals who manage the organization. Without corporation status, these individuals can be held personally liable for the organization's activities. A nonprofit organization has a board of directors whose members cannot receive any profits from their organizational work. Regardless of leadership changes, a corporation continues to exist until it is legally dissolved.

Nonprofit Cause

You must clearly define your organization's nonprofit cause. You have these four options:

  • Educational
  • Religious
  • Scientific
  • Literary

Your historic preservation organization would most likely be considered educational.

Dissolution Clause

You must include a clause related to the dissolution of your organization. This means that you must identify another 501c3 organization or public/government organization (with a related cause) to receive your assets, or another process for distributing your assets, if your organization is dissolved.

Description of Activities

You must include a narrative description of your organization's activities in Form 1023. You may need to look into the future to write this description, but you should prioritize your anticipated activities in order of importance. You will also need to estimate the percentage of time your organization will spend on specific activities. If you anticipate working on a specific project, you must establish the project's timeline and determine how it will be funded. You must also provide information about your anticipated funding.

Finances

The IRS will ask you to explain your financial arrangements with your incorporating officers and original board officers (if they are different), your trustees, and staff or independent contractors who will be making more than $50,000 annually. You must describe employee benefits, potential bonus payments, and other additional employee expenses. If you plan to provide goods or services to the general public, you need to explain this in your narrative.

History

The IRS will ask you about your organization's history. In particular, the IRS needs to know if you are creating a new group from the ashes of a defunct one or are receiving the assets of another 501c3 organization.

Political and Fundraising Activities

The IRS will closely examine whether or not your organization plans to engage in any political activity and certain kinds of fundraising. A 501c3 organization cannot campaign on behalf of specific candidates, but it can conduct voter education activities. There are also restrictions on bingo and other forms of gambling, fundraising for other nonprofits, and the use of a professional fundraiser. For more information, review Wisconsin's Department of Safety and Professional Services guidelines and FAQs.

Financial Statements

Regardless of how long you have been operating, officially or unofficially, you must provide the IRS with whatever financial information you have. If your organization has been operating for five years, the IRS will require balance sheets and financial statements for the prior five years. If your organization has been operating less than five years, you must provide information for the years you have been operating. If you have not opened your doors yet, you need to provide a good-faith estimate of income and expenses for the next three to four years. You need to demonstrate why you are confident you will receive public support.

IRS Actions

Once the IRS receives and reviews your application, it will take one of these three actions:

  1. Grant your tax-exemption request
  2. Ask for more information
  3. Deny your tax-exemption request

If your application is denied, it will be effective 30 days after the denial is issued. If this happens, consult an experienced attorney immediately.

As of September 9, 2008, all new 501c3 applicants are classified as public charities for their first five years of operation if they can prove in Form 1023 that they will likely receive public support. This gives an organization five years to prove its value as a public charity. If the organization is still struggling to attract public money after five years, the IRS will begin monitoring the organization's qualifications as a public charity.

Learn More

Find more how-to articles about historic preservation advocacy.

You can learn more about nonprofit operations from the Nonprofit Management Education Center offered by the Center for Community and Economic Development, which is part of the University of Wisconsin Division of Cooperative Extension. This resource includes a library of articles and an Organizational Assessment Tool.