But, before we dive in, it’s important to know that the first step in making the IRS love your 501c3 application is defining your nonprofit organization’s mission and purpose. If you haven’t done this yet, then read our blog post about it here.
Now that you’ve explained your nonprofit organization’s mission and purpose, the IRS needs you to demonstrate how the various aspects of your work will support your stated goals.
A nonprofit startup is a unique creature. Unlike a small business which asks, “How many units are we selling?” a “baby” nonprofit serves a cause, whose grand vision is often harder to measure against day-to-day activities.
Right behind your mission and purpose, the IRS is justifiably concerned that your plans work toward this purpose on a daily basis. You must demonstrate that the entire organization is purposefully working toward that mission.
Even though you understand the inner workings of your organization, IRS employees are not mind readers. That’s why you want to strive for “concise detail” on your 501c3 application. Sound like an oxymoron? It is, but it works!
Strive for a “Goldilocks and the Three Bears” approach: Not too much and not too little, but just enough!
Think with this: What activities will your nonprofit organization perform to achieve your goals? What kinds of employees and specialists will it require? What duties will they perform? How do the people, animals, or communities you help respond to and/or benefit from your work?
This Q & A process is also used by attorneys who help people apply for 501c3 Tax-Exempt Status.
To make things even easier, we’ve developed a simple formula that gets 100% approval on your 501c3 application and made it a part of our InstantNonprofit software. Think of it like Turbo Tax for the 501c3 process.
To get the details on our 501c3 Formation and Application package, click here.
Your “Narrative of Activities” provides a brief description of the problem your nonprofit addresses and the steps you’ll take to solve it. This is the place on the 501c3 application to explain your implementation strategy: A series of specific methods – either bulleted or simply in paragraph form – and the people, time frame, and location(s) in which you’ll perform your activities.
Remember, what is true of selling a product or testifying in court is true here: Give just enough information – but not too much. Your primary goal is to allow the IRS agent to check off the list of items he or she needs to stamp your application “APPROVED” while not raising any IRS red flags.
Avoid mentioning activities that refer to a purpose that is prohibited. For example, directly or indirectly supporting or opposing candidates for public office is prohibited; therefore do not include “political campaign mailings” in your activities.
Unless you have things to explain in further detail (such as a scholarship program that is distinct from your main activities), you should stick to 2 pages maximum explaining your “Narrative of Activities”.
IRS agents are human, so try not to anger, bore, confuse or frustrate them! Keep it short, simple and sweet.
Don’t rehash the information you include in other parts of your application. If you find yourself becoming redundant, simply refer to your business plan, mission statement, grant applications, website, or other supporting materials where the agent can find more information about your nonprofit organization.
Finally, do not bore them to death with things that go on in the background of every organization, such as banking, administration, or other routine activities.
To sum it up, rather than leaving any questions in the IRS agent’s mind as to how each of your activities relate to your 501c3 tax-exempt purpose, make it crystal clear.
The following exercises are actionable steps that will help you craft the concise “Narrative of Activities” the IRS is looking for to approve your 501c3 application.
So, let’s get started….
Consider using the “SCHEMES” mnemonic to make sure you don’t leave any important details out of your narrative.
SCHEMES stands for:
Space – Where do you perform your activities?
Cash – What money do you need and how do you spend it?
Helpers – Who and how many are going to perform the activities?
Equipment – What tools, computers, trucks, etc. will you need?
Materials – What “stuff” will you use in executing your activities?
Expertise – Do you need any specialists? What kind and how many?
Systems – Healthy organizations establish efficient processes. What kind of systems do you need?
We strongly encourage you to put in the time and effort in these exercises as they’ll help you craft a clear, powerful “Narrative of Activities” that the IRS will love!
Feel like you’ve got questions and would love to talk to an expert about it? No problem. You’re welcome to schedule a FREE consult with one of our concierges here.
Want all your paperwork handled with IRS APPROVED 501c3 Tax Exempt Status in a matter of weeks? Check out our 501c3 Formation and Application package here.
To your mission.
Jacqui Long | Conjuror of Comms & Content | Yippiekiyay Nonprofit Solutions