Which form should you use, Form 1023 or Form 1024?

Introduction 

If you're thinking about starting a nonprofit organization, you've probably heard about IRS Form 1023 and Form 1024. These forms are essential for gaining tax-exempt status, but they can be a bit confusing. Don't worry; we're here to help! In this blog, we'll break down the key differences between Form 1023 and Form 1024, making it easier for you to choose the right one for your nonprofit. Let's get started. 

Form 1023: Application for Recognition of Exemption Under Section 501(c)(3) 

Form 1023 is the most common form used by organizations seeking tax-exempt status under section 501(c)(3) of the Internal Revenue Code. This section covers charitable, religious, educational, and scientific organizations, among others. 

Eligibility

To use Form 1023, your organization must meet specific criteria. You must be organized as a corporation, association, or trust, and your primary purpose should fall under one of the 501(c)(3) categories. 

Benefits

• Donors can make tax-deductible contributions to your organization. 
• Potential eligibility for grants and funding from various sources. 
• Enhanced credibility and trust in the eyes of the public. 

Form 1024: Application for Recognition of Exemption Under Section 501(a) 

Form 1024 is a more versatile form that covers a broader range of tax-exempt purposes under section 501(a). This includes organizations such as social clubs, labor unions, and chambers of commerce, among others. 

Eligibility

Form 1024 is suitable for organizations that don't fit neatly into the 501(c)(3) categories. It's a good choice if you're uncertain about your organization's eligibility or if you have a unique purpose. 

Benefits

• Your organization can still enjoy some tax benefits, even if it doesn't qualify for 501(c)(3) status. 
• You can receive tax-deductible contributions if you meet the criteria for a specific section under 501(a). 
• You'll have official recognition as a tax-exempt organization. 

Key Differences 

Purpose 

The primary difference between these forms is the purpose of your organization. Form 1023 is for charitable and similar organizations, while Form 1024 covers a wider range of purposes. 

Eligibility

Make sure your organization meets the specific criteria for the form you choose. Using the wrong form can lead to unnecessary complications.

Processing Time

Form 1023 generally takes longer to process than Form 1024. If you need tax-exempt status quickly, Form 1024 might be the better choice. 

User Fees

Both forms require a user fee, but the fee for Form 1023 is usually higher. Check the latest fee schedule on the IRS website. 

How to file Form 1023 or Form 1024 

You can download Form 1023 and Form 1024 from the IRS website. The forms are complex, so it is important to read the instructions carefully and to seek professional help if you need it. 

Once you have completed the form, you must mail it to the IRS along with the required application fee. The application fee for Form 1023 is $600 ($275 for Form 1023-EZ) and the application fee for Form 1024 is $600. 

The IRS will review your application and issue you a determination letter. If your application is approved, the IRS will recognize your organization's tax-exempt status. 

Which form should you use? 

It depends on the type of nonprofit organization you are starting. If you want your organization to be eligible to receive charitable donations, then you must file Form 1023. If you don't need your organization to be eligible for charitable donations, then you may be able to file Form 1024. 

Here are some examples of organizations that would typically file Form 1023: 

• Religious organizations 
• Educational organizations 
• Charitable organizations that provide food, shelter, or other assistance to the poor or needy 
• Arts and cultural organizations 
• Environmental organizations 

Here are some examples of organizations that would typically file Form 1024: 

• Social welfare organizations that promote political or social causes 
• Labor unions 
• Trade associations 
• Business leagues 
• Social clubs 

Conclusion 

Choosing the right IRS form for your nonprofit organization is an important decision. By understanding the key differences between Form 1023 and Form 1024, you can make the best choice for your organization's needs. If you're still unsure which form to file, you should hire an accountant. They can help you determine your organization's eligibility and choose the right form for your specific circumstances. 

Once you've chosen the right form, be sure to complete it carefully and accurately. The IRS takes tax-exempt applications seriously, so it's important to submit a complete and well-prepared application. 

With the right IRS form and a complete application, you can be on your way to gaining tax-exempt status for your nonprofit organization. This will give you access to important benefits that can help you achieve your mission and make a difference in the world. If you don’t want to spend money on the software and want your taxes to be done correctly, contact us. We offer bookkeeping and accounting services right to your door as an outsourced accounting firm.