The 5 Addenda Required on a 501c3 Application

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Successful IRS Nonprofit 501c3 Applications aren’t “filled out.” They’re ASSEMBLED.

Therefore, you need to be sure to include the proper addenda and policies.

IRS guidelines for submitting a Form 1023, (Application for Recognition of Exemption & part of your 501c3 application) include several requirements for language in formative documents and policy addenda to be included with your application. If you miss these, you could be in for a long, long wait.

When the IRS examines your organization’s tax-exempt description, they don’t just look for a properly formatted 50-70+ page set of documents—they also look for certain buzzwords and language.

They want to see that you organized the entity exclusively for religious, charitable, scientific, literary, educational, or similar purposes. Also, that neither the operation nor the dissolution of the nonprofit will “inure to” (i.e., benefit) any individual or favored group. This means the organization has the burden of proving that it’s been created to serve a charitable purpose.

Logic suggests that you should be able to include this information in the appropriate space on the actual application, right? Wrong.

You’ll have to attach a series of separate addenda. If you tend to get writer’s block from facing a blank sheet of paper, you might be interested in our 501c3 Application solution.

Nonprofits Come in All Shapes and Sizes

In some cases a nonprofit founder will start an organization for the benefit of a small club or cause, never intending to exceed a few thousand dollars in annual revenues.

Organizations that have such a low level of financial activity are not required to file full blown IRS 990 tax forms annually, much less a Form 1023, unless its contributors want a tax write-off for their gifts. There are many such groups across the U.S., and they comprise an important part of our social fabric, spanning all age groups and demographics.

However, small organizations like the one described above, sometimes grow beyond their original intent. Along with the larger role they’re able to play in bettering society, they need to obtain official 501c3 status from the IRS. (If your situation resembles this scenario, in which case you likely filed your Articles of Incorporation/Organization without considering the requirements of IRS Form 1023, you will likely need to go back and amend your original Articles to include a “Statement of Exempt Purpose” and “Dissolution Clause.”)

In other cases, charities are started by visionary social entrepreneurs who, from the
outset, fully intend to get nonprofit status from the IRS. These organizations typically start with a seasoned founder or leadership, more robust bylaws and organizational documentation, and usually have reliable funding sources. These entities will have had the basics of what I’ve outlined below from their original filing.

Whatever the case may be, there are 5 types of additional addenda required
in addition to your Form 1023 on your 501c3 application. Here they are…

1. In Your Articles – Statement of Exempt Purpose -This statement must be included in your Articles, and a copy of your Articles must accompany your application: The Statement of Exempt Purpose tells the IRS that the organization exists to serve a truly charitable purpose. The term “charitable” is used in Section 501c3 in its generally accepted legal sense and includes:

Relief of the poor and distressed or of the underprivileged
Advancement of religion
Advancement of education or science
Erection or maintenance of public buildings, monuments, or works
Lessening of the burdens of government; and promotion of social welfare by organizations designed to accomplish any of the above purposes, or to lessen neighborhood tensions, to eliminate prejudice and discrimination, to defend human and civil rights secured by law, or to combat community deterioration and juvenile delinquency.

We recommend you include a broad purpose statement in your Articles. Why?

To avoid constraining your charity’s mission and activities, as these may evolve over time.
To avoid the need to amend the Articles and file amended Articles with the Secretary of State due to relatively minor changes in the statement of purpose.

Here’s an example of a broad exempt purpose statement for a typical nonprofit corporation:

“[NAME OF ORG] is a nonprofit corporation and is not organized for the private gain of any specific individual or group of individuals. It is organized under the laws of [STATE] exclusively for charitable purposes. The purpose for which this corporation is organized is exclusively for charitable (or religious) purposes under Section 501(c)3 of the Internal Revenue Code.”

2. As Addendum or in Articles: Dissolution

Clause—This may either be included when organizations are set up in a way that assures they won’t be operated for the benefit of any one person or group of people. An organization’s “dissolution clause” is put in place to assure the IRS (and anyone else who asks) that the public interest will be served should the organization shut its doors. IRS rules allow assets to be turned over to another 501c3 or to the government. We recommend the following clause, which allows assets to be turned over only to another charity, as opposed to the government:

“In the event of the winding up and dissolution of this organization, after paying or adequately providing for the debts and the obligations of the organization, the remaining as – sets shall be distributed to a nonprofit fund, foundation or corporation which is organized and operated exclusively for educational and charitable purposes and which has established its tax exempt status under section 501(c)3 of the Internal Revenue Code.”

3. Required Addendum: Procedure for Selecting Directors/ Trustees—You need to include this as an Addendum with Form 1023 (Form 1023, Part 2, Question 5) While most nonprofit corporations created with the intent of filing for nonprofit status with the IRS will include the process for selecting directors in their bylaws, the IRS does not require bylaws. At minimum, the IRS requires a method for selecting officers, directors, or trustees who have governing power over the organization.

For purposes of your 1023 Application, you may also use the following language as an addendum to satisfy the IRS agent’s need to understand your process for selecting those with governing power:

“Directors: Number,Selection, and Tenure. The Board shall consist of not less than [number] directors. Each director shall hold office for a term of [number] years. Vacancies existing by reason of resignation, death, incapacity or removal before the expiration of his/her term shall be filled by a majority vote of the remaining directors. In the event of a tie vote, the President shall choose the succeeding director. Successors shall be elected by outgoing directors. A director elected to fill a vacancy shall be elected for the unexpired term of that director’s predecessor in office.”

If we create your 501(c)3 for you, bylaws will cover this issue.

4. Required Addendum: “Conflict of Interest Policy”—A “Conflict of Interest Policy” is a document which describes an organization’s protocol for situations where, if misconstrued or abused, “insiders” could be accused of using the organization for personal benefit.

The IRS wants to help nonprofit organizations avoid, in their own words, “the appearance of impropriety” as well as any real private benefit to the organization’s board members, officers or managers that does not serve the nonprofit’s reason for being. Your “Conflict of Interest Policy” is where you’ll show the IRS that you have procedures in place to prevent wrongdoing—or even the appearance of it—in your nonprofit organization.

For example, when a board member or officer has a personal or financial interest in anything being considered by the board of directors, that person must disclose the interest and refrain from the discussion and vote. In addition, your meeting minutes must document the disclosure as well as the vote and reasoning for approval.

Having a good “Conflict of Interest Policy” and an active process to implement and document it will help your nonprofit application breeze through to a speedy approval. When helping our clients, we provide a “secret weapons” that goes beyond a mere policy— sample forms that can be used to prove they are actually complying with their self-imposed set of rules. If we create your 501(c)3 for you, we’ll handle all the required policies.

5. Required Addendum: “Narrative of Activities” – Because it is so central to your organization’s reason for being, “Narrative of Activities” was discussed in its own article. Learn about it on our blog here.

Action Steps:

1. Make a list of what you’ll need to include with your Form 1023 application! Then check off each item when you have completed it entirely—no cheating or you may forget a small item that kills your application.

2. Give us a call if you have questions! You can schedule a FREE consult call here with one of our expert concierges.

To your mission,

Jacqui Long | Communications | Yippiekiyay Nonprofit Solutions

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