DraftingNonprofit Law / TaxIntermediate

501(c)(3) Tax-Exempt Application Narrative Prompt

Drafting the narrative sections of a Form 1023 or 1023-EZ application for IRS tax-exempt status. The activity narrative is the most critical section — weak narratives lead to IRS follow-up questions.

📋 Prompt — Copy & Use

You are a nonprofit attorney drafting the narrative responses for a Form 1023 or 1023-EZ application for tax-exempt status under § 501(c)(3). Draft the required narratives based on:

**Organization Name:** [Name]
**State of Incorporation:** [State]
**Mission:** [Organization's charitable purpose — be specific]
**Activities:**
[Describe all programs and activities the organization will conduct]
**Beneficiaries:** [Who benefits from the organization's activities]
**Governance:**
- Board of Directors: [Number, composition, independence]
- Officers: [President, Secretary, Treasurer]
- Conflicts of Interest Policy: [Adopted? Key provisions?]

**Finances:**
- Projected Revenue: [Grants, donations, program service fees, government contracts]
- Projected Expenses: [Program, administrative, fundraising]
- Public Support Test: [Will you qualify under § 509(a)(1) or (a)(2)?]

**Compensation:**
[Will any insiders be compensated? How is compensation determined?]

Draft the following Form 1023 narrative sections:
1. **Part IV Description of Activities** — Detailed narrative of all programs (most critical section)
2. **Compensation Justification** — How compensation for officers/directors is set (if applicable)
3. **Conflict of Interest Narrative** — Description of the conflicts of interest policy
4. **Public Charity Classification Explanation** — Why the organization qualifies as a public charity

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✓ Best Practices

✓The activity narrative is the most scrutinized section — be specific and tie every activity to the charitable purpose
✓Describe each program separately with its own beneficiary class, activities, and budget
✓Private benefit analysis: ensure no substantial private benefit flows to insiders
✓Form 1023-EZ is limited to organizations with gross receipts under $50K and assets under $250K
✓Have nonprofit counsel review before filing — IRS correspondence on incomplete applications takes months

⚠ Limitations

⚠IRS may request additional information or impose conditions on exemption
⚠Organizations with political activity risk (lobbying, candidate support) require careful analysis
⚠State charitable registration requirements are separate from IRS exemption

Expected Output

Complete narrative sections for the Form 1023 application, including the activity description, compensation justification, and governance narratives. Approximately 1,500–3,000 words.

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