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The Importance of a Detailed Form 1023 – Narrative of Activities

For those starting a charitable nonprofit, one of your first and most important tasks for being considered for tax exempt status is to complete the IRS Form 1023 – Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. For many, completing this this 20+ page IRS form along with providing the requisite attachments may be the most difficult part of the process. Form 1023 includes 11 Parts and 8 Schedules. Probably, the most important section of this entire application is the PART IV, Narrative Description of Your Activities.

The form provides the following directions for completing this all-important section:

“Using an attachment, describe your past, present, and planned activities in a narrative. If you believe that you have already provided some of this information in response to other parts of this application, you may summarize that information here and refer to the specific parts of the application for supporting details. You may also attach representative copies of newsletters, brochures, or similar documents for supporting details to this narrative. Remember that if this application is approved, it will be open for public inspection. Therefore, your narrative description of activities should be thorough and accurate. Refer to the instructions for information that must be included in your description.”

Another source of guidance for completing this section is the IRS Publication entitled Instructions to Form 1023. For this section, the following guidance is provided:

“Describe completely and in detail your past, present, and planned activities. Do not refer to or repeat the purposes in your organizing document. You may refer to other parts of the application rather than repeat information provided elsewhere.

For each past, present, or planned activity, include information that answers the following questions.

  • What is the activity?
  • Who conducts the activity?
  • When is the activity conducted?
  • Where is the activity conducted (for example: Los Angeles and Fresno, California)?
  • How does the activity further your exempt purposes?
  • What percentage of your total time is allocated to the activity?
  • How is the activity funded? (This should agree with the financial data in Part IX.)
  • List any alternate names under which you operate, including any “aka” (also known as) or “dba” (doing business as) names.

If you have a website, you may attach a paper copy to support your narrative description of activities.”

Despite the above instructions, many applicants complete Part IV of the 1023 form by simply stating their mission, providing a brief list of proposed program(s) or by providing a very short description of their program(s).

Not being as detailed in completing this narrative description may create a few problems.

1.  The IRS agent who reviews your application may conclude that the IRS   does not have sufficient information to make a determination of whether or not your organization qualifies for 501(c)(3) status- based on the information you provided.

2. Response times from IRS officials can be lengthy, which may jeopardize any pending grants or funding allocations for your organization.

3. Lastly, your application could be denied based on the information (or lack thereof) that you supplied and you’d have to resubmit the application all over again.

The Form 1023 is one of your organization’s most important documents. It may also be heavily scrutinized by the IRS during the application process and also may face future scrutiny by other government agencies, including the Attorney General’s office.  Once it is filed and accepted by the IRS, it will become a public document signed under penalty of perjury, which means that it will be made available to anyone who inquires about your organization, and a less than clear narrative or your organization may very well result in a negative impression upon regulators as well as prospective funders and supporters. As such, you definitely want to be sure to put forth your best effort in completing this application or turn to a professional who has adequate experience in nonprofit formation.

Form 1023 should be treated as one of an organization’s (501(c)(3) status is conferred or denied on the basis of its contents). The narrative of activities, in particular, should reflect the values of the organization. If the organization wants to be viewed as professional, responsive, organized, compliant, honest, and trustworthy, the narrative should reflect all these qualities.

Learn more about starting a nonprofit and how we can help you to navigate the filing process here.