! Form 1023-EZ that corresponds — 0125 Inst 1023-EZ (PDF)

CAUTION foundation classification. We will process your

application with the classification you indicate based upon your representations.

Foundation classifications available to a Form 1023-EZ fil- er. An organization eligible to apply for exemption using Form 1023-EZ will have one of the following foundation classifications.

A section 509(a)(1) public charity described in section 170(b)(1)(A)(vi) that receives substantial support in the form of grants and contributions from governmental units, the general public, and other public charities. See the instructions for Line 2a, later.
A section 509(a)(2) public charity that receives substantial revenues from a combination of contributions, membership fees, and gross receipts from activities that further its exempt purpose. See the instructions for Line 2b, later.
A section 509(a)(1) public charity described in section 170(b)(1)(A)(iv) that operates for the benefit of a college or university that is owned or operated by a governmental unit. See the instructions for Line 2c, later.
A private foundation (other than a private operating foundation). See the instructions for Line 3, later.

You can find a detailed description of the tax treatment of public charities and private foundations in chapter 3 of Pub. 557. Also see Pub. 526, which explains the limitations on deductibility of contributions for gifts to public charities and private foundations.

Note. Your foundation classification can change if the types, sources, and amounts of your revenues change.

Determining your correct foundation classification. In order to determine your correct foundation classification, you need to know the types, sources, and amounts of your revenues for the most recent 5-year period. If you are a new organization, base your determination on the types, sources, and amounts of revenue you actually received since your formation, together with the types, sources, and amounts of revenue you anticipate you will receive over the first 5 years of your existence.

Because of the low asset and revenue thresholds for Form 1023-EZ, the instructions later simplify the applicable tests for the types of public charity described in the instructions for Line 2a and Line 2b. You can obtain more detailed information about the public support tests for Line 2a and Line 2b in the Instructions for Schedule A (Form 990 or 990-EZ), Public Charity Status and Public Support. In addition, you can complete Schedule A (Form 990 or 990-EZ), Parts II and III as an alternative to the simplified calculation steps described later.

Types of Revenue

Gifts, grants, and contributions. Gifts, grants, and contributions are transfers of money or property you receive

without providing goods or services in exchange. Include bequests and donations in this revenue type. Membership fees may also be treated as contributions when the member receives nothing of value in exchange for the membership fee. In addition, you can treat the value of services or facilities furnished by a governmental unit without charge, provided that the governmental unit would ordinarily charge for the use of its facilities. Treat contributions from members of a family as made by one person. Treat contributions by an individual and a business entity the individual controls as being made by the individual.

Exempt-activity revenues. Exempt-activity revenues include admissions fees, revenues from merchandise sold or services performed, or facilities furnished in any activity related to your tax-exempt purpose.

Revenues from unrelated activities. Revenues from activities unrelated to your exempt purpose don’t count as public support for section 170(b)(1)(A)(vi) or 509(a)(2). Therefore, you need to identify these revenues and account for them separately from gifts, grants, contributions, exempt-activity revenues, and unusual grants. Revenues from activities unrelated to your exempt purpose include admissions fees, revenues from merchandise sold or services performed, or facilities furnished in any activity that is unrelated to your tax-exempt purpose. For the purposes of the Form 1023-EZ, we do not distinguish between revenues in this category that are taxable as unrelated business taxable income (UBTI) and revenues that are not UBTI because of an exception, nor do we factor in the deduction allowed on Schedule A (Form 990 and 990-EZ) for the tax on UBTI. See the Instructions for Schedule A (Form 990 and 990-EZ) and Pub. 598 for more information. Investment income. Investment income includes interest, dividends, and similar items.

Unusual grants. “Unusual grants” are contributions from disinterested persons (that is, not your founder or members of your governing body) that are unusual (in terms of their size), that you do not anticipate will be recurring. For example, a one-time promise of “seed funding” to help you start operations and develop broad-based public support (whether received in a lump sum or over a period of years) could potentially be characterized as an unusual grant. Before you decide that a contribution is an “unusual grant,” see chapter 3 of Pub. 557 for more information.

Sources of Revenue

Disqualified persons. The term “disqualified person” has a specific meaning depending upon the circumstances. For the purposes of Form 1023-EZ and your foundation classification, the term “disqualified persons” includes any individual or organization that is any of the following.

A "substantial contributor" to you (defined below).
An officer, director, trustee, or any other individual who has similar powers or responsibilities.
An individual who owns more than 20% of the total combined voting power of a corporation that is a substantial contributor.
An individual who owns more than 20% of the profits interest of a partnership that is a substantial contributor.
An individual who owns more than 20% of the beneficial interest of a trust or estate that is a substantial contributor.
A member of the family of any individual described in 1, 2, 3, 4, or 5 above.
A corporation in which any individuals described in 1, 2, 3, 4, 5, or 6 above hold more than 35% of the total combined voting power.

Form 1023-EZ Instructions 9

A trust or estate in which any individuals described in 1, 2, 3, 4, 5, or 6 above hold more than 35% of the beneficial interests.
A partnership in which any individuals described in 1, 2, 3, 4, 5, or 6 above hold more than 35% of the profits interest.

Substantial contributor. A “substantial contributor” is any individual or organization that gave more than $5,000 to you from the date you were formed or other date that your exemption would be effective, to the end of the year in which the contributions were received. This total amount contributed must also be more than 2% of all the contributions you received. A creator of a trust is treated as a substantial contributor regardless of the amount contributed.

For more information regarding substantial contributors, go to IRS.gov/SubstantialContributor .

Family members. A “member of the family” includes the spouse, ancestors, children, grandchildren, great-grandchildren, and their spouses.

For additional information concerning members of the family, go to IRS.gov/FamilyMembers .

Check “No” if you are not applying for recognition as a church, school, or hospital (as described in section 170(b)(1)(A)(i), (ii), or (iii)).

Line 2a. Check this box if you meet, or reasonably expect to meet, the requirements for the 170(b)(1)(A)(vi) public support test.

Use the calculation in steps 1–7 below to determine whether you can check Line 2a because you meet, or reasonably expect to meet, the applicable public support test. An organization “normally” receives the requisite amount of public support and meets the 33 ¹ /3% public support test or the facts and circumstances test during its first five taxable years as a section 501(c)(3) organization if the organization can reasonably be expected to meet the requirements of the 33 ¹ /3% support test or the facts and circumstances test during that period. For additional information about the 33 ¹ /3% support test and the “facts and circumstances” test, see Pub. 557 and Regulations section 1.170A-9(f). For the calculations below, combine revenues for the most recent 5-year period. If you are a new organization, base your calculation on revenues you have actually received since your formation as well as revenues you reasonably anticipate you will receive over the first 5 years of your existence. You can also use this support calculation for Line 2c.

Further information about disqualified persons can be obtained at IRS.gov/DisqualifiedPerson .

General public. For the purposes of determining your foundation classification, the term “general public” includes any person who is not a disqualified person.

Governmental unit. Governmental unit means a state, a territory of the United States, or a political subdivision of a state or U.S. territory, the United States, or the District of Columbia. Treat taxes levied on your behalf that are paid to or spent on your behalf as being from a governmental unit. In addition, if a governmental unit provides services or facilities to you without charge, and it does not provide those services or facilities to the public without charge, you should treat the value of those services and facilities as being from a governmental unit.

Step 1. Total all gifts, grants, and contributions (including those from governmental units and public charities). Don’t include exempt-activity revenues and unusual grants.

Step 2. Multiply the amount from Step 1 by 2% (0.02). This is your 2% threshold amount. Gifts, grants, or contributions from persons other than governmental units and public charities can be treated as public support only up to the 2% threshold.

Step 3. Excluding gifts, grants, and contributions from governmental units and public charities, add together contributions of any person that exceed the 2% threshold amount calculated in Step 2.

Public charity. An organization described in section 501(c) (3) that makes a gift, grant or contribution to you, or pays exempt-service revenues to you, should inform you of its foundation classification.

Foundation classification tests. Lines 2a, 2b, 2c, and 3 each uses a different test. The specific test for each line is explained below.

You may only check one box in Line 2. As an alternative to the tests described below, you can use the more detailed support calculations in Schedule A (Form 990 or 990-EZ), Part II (for Line 2a, or Line 2c), or Part III (for Line 2b).

If the IRS approves your application and you are

TIP classified as a public charity, then any year that you must

file Form 990 or Form 990-EZ, you will use Schedule A (Form 990 or 990-EZ), to confirm that you continue to satisfy the section 170(b)(1)(A)(vi) or 509(a)(2) public support test. See Annual Filing Requirements , earlier.

Line 1. Check “Yes” if you are applying for recognition as a church, school, or hospital (as described in section 170(b)(1)(A) (i), (ii), or (iii)). Also see questions 12 through 14 on the Form 1023-EZ Eligibility Worksheet. If you are seeking recognition as a church, school, or hospital, you are not eligible to use Form 1023-EZ and should instead submit Form 1023 if you wish to obtain a determination letter from the IRS. However, churches (including synagogues, temples, and mosques) and integrated auxiliaries of churches and conventions or associations of churches may be considered tax exempt under section 501(c)(3) even if they do not file Form 1023.

Example. If the amount in Step 1 is $150,000, the 2% threshold is $3,000. If, over the 5-year period, one individual donor gave $4,000, another individual donor gave $3,250, and the rest of the donors gave $3,000 or less, the amount calculated for Step 3 will be $1,250, which is ($4,000 minus $3,000) plus ($3,250 minus $3,000).

Step 4. Subtract the amount calculated in Step 3 from the amount calculated in Step 1. This is your 170(b)(1)(A)(vi) public support amount.

Step 5. Calculate the total of your unrelated trade or business revenues, and investment income. Don’t include exempt-activity revenues and unusual grants.

Step 6. Add the amount from Step 1 to the amount from Step 5. This is your 170(b)(1)(A)(vi) total support amount. Step 7. Divide your 170(b)(1)(A)(vi) public support amount (calculated in Step 4) by your 170(b)(1)(A)(vi) total support amount (calculated in Step 6).

If the result is at least 33 ¹ /3%, you satisfy the 170(b)(1)(A)(vi) public support test and should check the box on Line 2a.
If the result is less than 33 ¹ /3%, but is at least 10%, you might satisfy the public support test for Line 2a (or Line 2c) based upon a “facts and circumstances” test. An organization with public support between 10% and 33 ¹ /3% must be organized and operated in a way that will attract new and additional public or governmental support on a continuous basis. The following factors are taken into account in determining whether an organization that meets the 10% public support requirement and is organized and operated to attract new and additional public support may

10 Form 1023-EZ Instructions

qualify as publicly supported for the purposes of section 170(b)(1)(A)(vi). a. The percentage of financial support the organization receives from the general public, governmental units, or public charities (the higher the percentage, the lower the burden of meeting the other factors). b. Whether the organization receives support from a representative number of persons. c. All other facts and circumstances, including the public nature of the organization’s governing body, the extent to which its facilities or programs are publicly available, the extent to which its dues encourage membership, and whether its activities are likely to appeal to persons having a broad common interest or purpose.

Note. If you do not meet, or reasonably expect to meet, the section 170(b)(1)(A)(vi) public support test, but you receive, or reasonably expect to receive, most of your support in the form of exempt-activity receipts, continue to the section 509(a)(2) public support test for Line 2b.

Line 2b. Check this box if you meet, or reasonably expect to meet, the requirements for the section 509(a)(2) public support test.

Use the calculation in steps 1–9 below to determine whether you can check Line 2b because you meet, or reasonably expect to meet, the section 509(a)(2) public support tests. An organization will “normally” meet the one-third support test and the not-more-than-one-third support test during its first 5 taxable years as a section 501(c)(3) organization if the organization can reasonably be expected to meet the requirements of the one-third support test and the not-more-than-one-third support test during that period.

For additional information about the one-third support test and the not-more-than-one-third support test, see Pub. 557 and Regulations section 1.509(a)-3(a). For the calculations below, except as otherwise noted, combine revenues for the most recent 5-year period. If you are a new organization, base your calculation on revenues you have actually received since your formation as well as revenues you reasonably anticipate you will receive over the first 5 years of your existence.

Step 1. Add together amounts you received in the form of taxes levied on your behalf that are paid to or spent on your behalf and the value of services and facilities provided to you by a governmental unit without charge (see the description of this revenue source earlier). Do not include amounts a governmental unit pays to in the form of a grant, contribution, or exempt-activity revenues.

Step 2. Add together all gifts, grants, contributions, and exempt-activity revenues from all sources not included in the calculation for Step 1, excluding unusual grants.

Step 3. To the amount you calculated in Steps 1 and 2, add investment income and all revenues from unrelated activities. For the purposes of this simplified calculation, do not distinguish between unrelated activity revenues that generate UBTI and those that qualify for an exception from UBTI. This is your 509(a) (2) total support amount.

amount or $5,000 for that year. Total the amounts that exceed the greater of 1% or $5,000 threshold for each year. Make this calculation on a year-by-year basis, rather than on a 5-year aggregated basis.

Step 7. Subtract the total of the amounts calculated in Step 4, Step 5, and Step 6 from the amount you calculated in Step 2. Then, add that to the amount calculated in Step 1. This is your 509(a)(2) public support amount. Step 8. Divide your 509(a)(2) public support amount (calculated in Step 7) by your 509(a)(2) total support amount (calculated in Step 3). If the result is less than 33 ¹ /3%, this calculation indicates that you don’t satisfy the 509(a)(2) public support test. If the result is at least 33 ¹ /3%, proceed to Step 9.

Step 9. In addition to the 509(a)(2) public support amount of at least 33 ¹ /3%, you may not derive more than 33 ¹ /3% of your total support from a combination of investment income and revenues from activities unrelated to your exempt purpose. Add together your investment income and revenues from unrelated activities. Then, divide that amount by the 509(a)(2) total support amount. If that amount is less than 33 ¹ /3%, you satisfy the second part of the 509(a)(2) public support test.

If the result in Step 8 is at least 33 ¹ /3% and the result in Step 9 is less than 33 ¹ /3%, you satisfy the 509(a)(2) public support test. Check the box on Line 2b.

Line 2c. In order to be able to check the box for Line 2c, you must satisfy the same public support test for Line 2a, earlier. See Rev. Rul. 82-132, 1982-2 C.B. 107. Check this box if, in addition to satisfying the support test described in Line 2a, earlier, you are organized and operated exclusively to receive, hold, invest, and administer property for and make expenditures to or for the benefit of a state or municipal college or university (see below).

The college or university you benefit must be:

An agency or instrumentality of a state or political subdivision,
Owned and operated by a state or political subdivision, or
Owned and operated by an agency or instrumentality of one or more states or political subdivisions. For this purpose, “support” doesn’t include income received in the exercise or performance by the organization of its charitable, educational, or other purpose or function constituting the basis for exemption. See Pub. 557 for additional information.

Line 3. If you are eligible to apply for exemption using Form 1023-EZ, but you don’t satisfy one of the public charity tests listed in Lines 2a–2c, you are a private foundation and must confirm that you satisfy the organizing document requirements discussed below.

Special organizing document requirement. Before you check Line 3, you need to ensure that your organizing document satisfies the special rule under section 508(e) applicable to private foundations.

As a private foundation you are not tax exempt unless