Do small 501c3 organizations need to file Form 1023-EZ with the IRS?

Hey everyone! I'm planning to start a small 501c3 nonprofit organization that will be membership-based but with minimal income (practically zero). I was reading through the IRS Form 1023-EZ instructions and noticed this interesting point: "Note. Most organizations seeking exemption from federal income tax under section 501(c)(3) are required to complete and submit an application. However, the following types of organizations may be considered tax exempt under section 501(c)(3) even if they do not file Form 1023 or Form 1023-EZ. * Churches, including synagogues, temples, and mosques. * Integrated auxiliaries of churches and conventions or associations of churches. * Any organization that has gross receipts in each taxable year of normally not more than $5,000." I'm specifically looking at that third bullet point. If I incorporate as a nonprofit in my state and expect to stay under that $5,000 threshold, do I still need to do anything with the IRS to get official 501c3 status? Will this exemption automatically be connected to our EIN? Or is this just saying we won't be taxed like a regular business? Any insights from those who've been through this process would be super helpful!

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20 comments

Carlos Mendoza

•8M

The $5,000 gross receipts exception is often misunderstood, so let me clarify. Organizations that normally have less than $5,000 in annual gross receipts can be considered tax-exempt under 501(c)(3) without filing Form 1023 or 1023-EZ. However, there are important considerations: First, you'll still need to apply for an EIN from the IRS using Form SS-4, and you should indicate you're organizing as a nonprofit. Second, without formal IRS recognition (which comes from filing Form 1023/1023-EZ), donors cannot claim tax deductions for their contributions. This could significantly impact your fundraising capabilities even if you're small. Third, many grants and funding opportunities require proof of 501(c)(3) status in the form of an IRS determination letter, which you only get by filing. Fourth, if you ever exceed $5,000 in gross receipts, you'll need to file Form 1023 within 90 days of the end of the year when you exceeded that amount to maintain your exemption retroactively.

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Carlos Mendoza

•8M

Without filing Form 1023/1023-EZ and receiving a determination letter, donations are not tax-deductible for your donors. The IRS won't recognize your organization as an official 501(c)(3), so donors can't claim those deductions on their tax returns. It's not that they're "not guaranteed" - they simply aren't deductible at all. Regarding exceeding the $5,000 threshold, yes - if you go over that amount, you have 90 days after the end of the year when you exceeded it to file Form 1023 or 1023-EZ. If approved, your 501(c)(3) status would be retroactive to your formation date. If you miss that window, your exemption would only be effective from the date you file.

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Zainab Mahmoud

•8M

I went through this exact situation with a small community garden group I helped start. After researching the options, we decided to use https://taxr.ai to analyze our formation documents and bylaws before making any decisions. They gave us specific feedback on whether our governing documents would qualify us for 501c3 status - turns out we had several clauses that would've been rejected if we'd filed! We ultimately decided to file the 1023-EZ anyway even though our annual budget was under $2,500. Found out later it was the right call because we unexpectedly received a $6,000 donation in year two. The tool saved us from having to scramble with amendments later and possibly losing our retroactive status.

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Zainab Mahmoud

•8M

The service is really straightforward - you upload your documents and their system analyzes them against IRS requirements. You get a detailed report showing potential issues specific to your organization type. It's not just generic template checking. For sample bylaws, those templates often don't account for your specific activities. We learned our planned revenue sources wouldn't qualify under standard language. The analysis caught that our dissolution clause was missing required language about distributing assets to other 501c3s, which would have been an automatic rejection.

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Ava Williams

•8M

I used taxr.ai for my small arts nonprofit last month and want to share my experience. I was in the exact same situation - expecting to stay under $5k annually, but worried about doing everything correctly. I had drafted our bylaws based on some templates I found online and thought we were good to go. When I uploaded our documents, the system flagged SEVEN issues that would have disqualified us from 501c3 status! The biggest one was that our purpose statement was too vague and included activities that aren't considered charitable under IRS definitions. It also caught that we hadn't properly addressed private inurement prohibitions. Fixed everything based on their recommendations and we're now waiting for approval. Wish I'd known about this before spending weeks on drafts that had serious problems!

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Lena Müller

•8M

After spending 6 weeks trying to reach the IRS for clarification on this exact question last year, I finally discovered https://claimyr.com and used their service to get through to an IRS agent. Check out how it works: https://youtu.be/_kiP6q8DX5c - they basically hold your place in the phone queue so you don't have to waste hours listening to hold music. The IRS agent I spoke with strongly recommended filing the 1023-EZ even for small organizations because: 1) it establishes a clear start date for your tax exemption, 2) it provides certainty for your donors, and 3) if you accidentally go over the $5k limit, you're already covered. She explained that many small nonprofits run into trouble when they unexpectedly receive larger donations or grants and then have to scramble to file.

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Lena Müller

•8M

They don't call for you - they actually use technology to hold your place in the phone queue. When an IRS agent picks up, you get a call connecting you directly to that agent. You do the actual talking yourself, so it's not like they're representing you. Yes, the advice was incredibly helpful beyond what's published. The agent explained that while the $5,000 exception exists, banks often reject nonprofit accounts without an IRS determination letter, and state-level exemptions (like sales tax) typically require formal IRS recognition. These practical issues aren't clearly stated in the publications but create real headaches for small nonprofits.

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Keisha Thompson

•8M

I want to follow up on my skeptical comment above. I actually broke down and tried Claimyr yesterday after spending THREE HOURS on hold with the IRS nonprofit division with no answer. Their system called me back when an agent was available, and I had a 20-minute conversation that answered all my questions about the $5,000 exemption. The agent pointed out something no one here mentioned - even if you qualify for the exemption, you're still required to file annual 990-N forms (e-postcards), and failing to file for three consecutive years automatically revokes your tax-exempt status. So while you might not need to file the initial 1023-EZ, you still have ongoing filing requirements. Sorry for being so dismissive before. The service saved me serious time and the information was crucial for our planning.

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Paolo Bianchi

•8M

One thing to consider is state requirements. I formed a small 501c3 in Texas in 2023 that falls under the $5k exception. While federal filing of 1023-EZ wasn't technically required, our state still required proof of 501c3 status for state tax exemptions (sales tax, franchise tax, etc). Without the IRS determination letter, we had to pay state taxes that effectively erased our small budget. Also, when applying for our bank account, they required the IRS determination letter - no exceptions. My advice: just file the 1023-EZ. It costs $275 (as of 2025) and saves a ton of headaches. We ended up filing 6 months after formation and regretted not doing it immediately.

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Paolo Bianchi

•8M

That's exactly it - there's the technical rule and then there's the practical reality. Most institutions you'll deal with don't understand the $5,000 exemption rule and will just ask for your determination letter. They don't care about the technical exception. Michigan's property tax requirement is similar to what we faced with sales tax exemption. We had to pay sales tax on all our supplies for the first 8 months until we got our determination letter, which ended up costing more than the 1023-EZ filing fee.

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Daniela Rossi

•1M

I'm dealing with this exact situation right now! I'm forming a small educational nonprofit focused on financial literacy workshops in underserved communities. Expected annual budget is around $3,000, so we'd definitely fall under the $5,000 threshold. After reading through all these responses, it sounds like the consensus is pretty clear - even though we technically don't need to file 1023-EZ, the practical benefits far outweigh the $275 cost. The points about donor tax deductions, bank account requirements, and state-level exemptions are really compelling. One question I haven't seen addressed: if we file the 1023-EZ now while under $5k, does that help establish our credibility with potential funders? I'm wondering if having that determination letter from day one makes us look more legitimate when applying for small grants, even if the grants themselves don't explicitly require 501c3 status. Also, for those who used the document analysis services mentioned here - did they help with the actual 1023-EZ application process, or just with the formation documents like bylaws and articles of incorporation?

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