These are the instructions for Form 1023 Part IV, the section where the IRS evaluates your organization's activities in practice. Part IV covers how your programs operate, who benefits, how funds are raised and distributed, whether you engage in political or legislative activity, and whether any part of your work involves foreign operations or other organizations. The IRS uses this section to confirm that your activities stay within the boundaries of Section 501c3 501(c)(3).

Each question in Form 1023 Part IV is designed to uncover private benefit, improper grants, excessive lobbying, prohibited political activity, or loss of control over charitable funds. Many applicants underestimate these questions because they look routine. They are not. Inconsistent, vague, or incomplete answers trigger follow-up requests and delays. These instructions walk through the Form 1023 Part IV activity questions so your responses align with how the IRS reviews exemption applications.

Form 1023 Part IV: Narrative Description of Past, Present, and Planned Activities

This question is the core of Part IV. The IRS is asking for a complete operational narrative, not a mission statement, and not parroting what's in your Articles.

You must describe everything your organization has done, is doing, and plans to do, in plain language, with no gaps and no assumptions. Do not repeat the legal language from your organizing document. The examiner already has those. This section is about what actually happens on the ground.

A thin activity description is the fastest way to trigger follow-up questions and delays. The online form doesn't allow enough space to list all your activities in a coherent way. You should attach a separate attachment and reference it in Part IV.

For detailed structure, examples, and templates, see the dedicated page here: Narrative Description of Activities for Form 1023.

Form 1023 Part IV: NTEE Code and Where to Find it

Form 1023 requires you to identify an appropriate NTEE code for your organization. The National Taxonomy of Exempt Entities (NTEE) system is used by the IRS and NCCS to classify nonprofit organizations by purpose and activity.

In Part IV of Form 1023, you may either select an NTEE code yourself or allow the IRS to assign one. You should pick the closest code that describes your organization yourself if you can find one. Picking your own NTEE code takes the burden off the examiner so be helpful if you can. You can see the list of NTEE codes here.

Form 1023 Part IV: Providing Goods, Services, or Funds to Individuals & Organizations

The rest of Part IV of the Form 1023 is designed to reveal information regarding your activities with members, individuals, and organizations who might receive benefits from you along with your legislative activities. While most of these questions are straightforward, a few are loaded traps that deserve extra attention.

In a nutshell, you normally shouldn't be organized solely to benefit another organization. you can collaborate with or support other organizations, but your nonprofit can't exist just to funnel resources to another group. That's not charity, it's laundering with extra paperwork.

And no, you can't just create a nonprofit to help your cousin or your church choir buddy pay rent. You must serve a broader charitable class, not individual cases.

For example, you're running a breast cancer nonprofit organization. Your mission should be saving all the breast cancer patients you can. You cannot have an organization to raise funds and save only Sally who has cancer. Sally is an individual not a charitable class. Your organization should work with a class of people, animals, issues… to put it simply, you cannot start an organization for an individual or two or three and expect to be exempt from paying taxes.

Form 1023 Part IV: Supporting or Opposing Candidates in Political Campaigns

The IRS uses the word "political" to refer only to campaigns for public office such as President, Senate, or Congress. As a 501c3 501(c)(3) organization, you're strictly prohibited from participating in or intervening in any political campaign on behalf of, or in opposition to, a candidate.

But that doesn't mean you can't criticize the current governor, the President, or the Joint Chiefs of Staff on your own dime. That's not campaigning, that's free speech. You just can't do it on behalf of the organization or in any shape or form that connects it to the organization.

If you answer yes to this question, your application is denied, no follow-up questions, no clarification, just denied.

Influencing legislation is a different issue, it's not political. Far too many nonprofits go silent on issues that directly affect their mission because they're scared the IRS will penalize them. Don't make that mistake. Staying silent when your voice matters is a disservice to the people you serve. You have a civic duty to speak up when needed. Just don't tell anyone who to vote for.

Form 1023 Part IV: Attempt to Influence Legislation

To answer this section on Form 1023 Part IV, first you need to understand what legislation actually is.

Legislation refers only to actions by Congress, state legislatures, local councils, or similar lawmaking bodies with respect to acts, bills, resolutions, referendums, ballot initiatives, or constitutional amendments. It doesn't include actions by executive, judicial, or administrative bodies. School boards, housing authorities, sewer and water districts, zoning boards, and similar special-purpose bodies are treated as administrative, not legislative, even when members are elected.

 

Influencing legislation means attempting to affect the outcome of a legislative process, either directly or indirectly. Direct lobbying involves communications with legislators or government officials involved in drafting or voting on legislation where the purpose is to influence the legislation itself. Grassroots lobbying involves efforts to influence legislation by shaping the opinions of the general public or a targeted segment of the public.

Influencing legislation and lobbying are not illegal per se, but you have to keep them within permissible limits. In fact, a nonprofit organization is nothing without power to further its agenda, so don't shoot yourself in the foot by answering NO if your programs necessitate such activities. You can either choose to make the election, by filing Form 5768 with the IRS (if you are formed to support another charity, this option is not available to you), or you can opt for the substantiality test.

If you opt for substantiality test, you have to make sure your lobbying activities stay insubstantial.

There's a wealth of information on the lobbying and political activities of nonprofit page, make sure to read it if you decide that the answer is yes.

Form 1023 Part IV: Publish, Own, or Have Rights in Intellectual Property

This question tests commercial activity, control, and private benefit, not creativity. The IRS is asking whether your organization creates or controls intellectual property and, if so, whether that property is used in a way that stays consistent with Section 501c3 501(c)(3). Intellectual property includes books, curriculum, music, videos, research, software, training materials, artwork, and similar works, whether distributed for free or sold. If the only thing you're worried about is your logo, answer NO and move on.

If you answer Yes, you must explain all of the following with clarity and restraint:

• who owns the copyrights, patents, or trademarks,
• whether any fees are charged and how those fees are set,
• how the materials are produced and distributed,
• whether the activity primarily furthers your exempt purpose or generates revenue.

The IRS is watching for publishing operations that drift into commercial publishing, licensing arrangements that benefit insiders, or intellectual property that exists primarily to generate income rather than advance a charitable program. If the materials are incidental to your programs, state that plainly. If they are sold, explain why the pricing supports access, education, or program delivery rather than profit.

If you answer No, answer No cleanly and move on. Do not speculate or describe hypothetical future publishing in your narrative unless you genuinely intend to do it.

Form 1023 Part IV: Providing Financial Education or Financial Counseling

This question is not about education in general. It's about regulated, high-risk activity that historically produces private benefit problems.

The IRS is asking whether you provide services related to budgeting, personal finance, credit use, debt management, foreclosure assistance, or financial counseling. These activities trigger heightened scrutiny because they can easily slide into fee-for-service counseling, individualized benefit, or unlicensed advisory services. Not only that, if you even indirectly suggest that you will recommend a financial institution such as a bank to your class, exemption is denied.

If you answer Yes, you must explain:

• whether services are educational or individualized counseling,
• whether they are offered to a broad public class,
• whether any fees are charged,
• who delivers the services and under what standards or controls.

General education programs such as workshops, classes, publications, or public seminars are easier to justify than one-on-one counseling tied to specific financial outcomes. Individualized assistance requires stronger safeguards to show that the activity serves a charitable class and not private interests.

If you answer No, answer No without qualification. Do not add narrative about informal advice, casual guidance, or future possibilities. Ambiguity here invites follow-up questions.

Form 1023 Part IV: Grants, Loans, or Other Distributions to Organizations

This part of Form 1023 Part IV is organization-specific. If the answer is No, no clarification is required, move on.

If YES, be specific about your selection and approval methods for making grants, loans, or distributions to other organizations. You need to list real-life scenarios to clarify the situation. One thing that you need to be very careful about is that your organization should always be in control of the loaned, granted, or distributed funds. If you do one of the three, answer it like so and don't be afraid to say see attachment and give a complete answer in your attachment:

Form 1023 Part IV: Grants, Loans, or Other Distributions to Foreign Organizations

This is the same as above, but needs more convincing that your funds don't end up in North Korea or in the hands of terrorists. Be very, very, very specific here. This cannot be stressed enough.

Provide the Name of Each Foreign Organization, the Country and Regions Within a Country in Which Each Foreign Organization Operates, and Describe Any Relationship you Have With Each Foreign Organization.

Again, you should be specific in explaining your foreign activities. If you think you explained it enough, add two more sentences to it to be on the safe side.

Do Your Contributors Know That you Have Ultimate Authority to Use Contributions Made to you at Your Discretion for Purposes Consistent With Your Exempt Purposes?

You should be very transparent on where, when, and how your funds are going to be spent, and the general public needs to know this information at the time of making the donation. Use your website, your donation forms, and any other medium you have at your disposal to make it very clear to donors ahead of time.

Do you or Will you Make Pre-Grant Inquiries About the Recipient Organization?

You absolutely should.

Do you or Will you Use Any Additional Procedures to Ensure That Your Distributions to Foreign Organizations are Used in Furtherance of Your Exempt Purposes?

You need to explain this clearly. Use the following example to put the IRS's mind at ease, and more importantly, follow it in practice. It's a smart way to avoid trouble down the line.

Do you Share Board Members or Other Key Personnel With the Recipient organization(s)?

This question asks whether your organization shares any board members, officers, directors, trustees, or other key personnel with a recipient organization. For purposes of Part IV, a "relationship" exists if your organization and a recipient organization are not operationally independent.

A relationship includes situations where:

1. one organization controls the other through shared officers, directors, or trustees, or through authority over budgets or expenditures;
2. both organizations were formed at approximately the same time by the same individuals;
3. the organizations coordinate programs, facilities, staff, or operations; or
4. individuals who exercise substantial influence over your organization also exercise substantial influence over the recipient organization.

If any of these conditions apply, you have to disclose the relationship and explain how control, conflicts, and decision-making are managed.

Shared leadership doesn't automatically disqualify an organization, but failure to disclose it does. Transparency and documented separation of control are required. If you have no relations, answer No and no further explanation is necessary.

Form 1023 Part IV: Operating in a Foreign Country or Countries

This section is for nonprofit organizations who will be operating in foreign countries. Since 9/11, the Treasury tightened the distribution of funds outside the United States.

If your organization is formed to support a specific foreign charity, stop right here. Read the Nonprofit 501c3 501(c)(3) Friends of Organization Requirements for further clarification.

For operating outside of the United States, you should show exactly what you mean by "operation" and when it comes to clarification of this section, the more is always more. This section should be carefully answered.

Form 1023 Part IV: Hospitals, Schools, Low Income Housing, and Scholarships

If your organization is a hospital, a school, provides low income housing, or educational assistance and loans such as scholarships, you're required to complete additional schedules on the IRS Form 1023. Basically,

• If you will be operating a school; complete Schedule B. Note that Nonprofit Private Schools have to adopt a racial non-discrimination or nondiscriminatory policy or their application will be rejected.
• If you will be operating a hospital or medical care facility;  complete Schedule C.
• If you will provide low-income housing; complete Schedule F.
• If you will provide scholarships, fellowships, educational loans, or other educational grants to individuals; complete Schedule H.

Under the Form 1023 tab in the menu, you can find a complete list of instructions for schedules from A-H which you should use to answer these questions.

Form 1023 Part IV: Fundraising Activities

If you're not a private foundation, of course you will be fundraising. List every uncommon fundraising activity beside the checkboxes and be specific for each item. But before you go crazy on listing all the cute thoughts you have about fundraising, stop everything and read the Fundamentals of Fundraising for exempt organizations from top to bottom, and then bottom to top. This article explains the fundraising pitfalls and the IRS procedures and guidelines used by federal revenue agents to audit your organization when you make a fundraising mistake.

This article is invaluable because it pinpoints exactly what they're looking for in your application. It's extremely important that you familiarize yourself with the laws and limitations involved in fundraising activities, since noncompliance with these laws will result in revocation of your exempt status.

You should also read the proven nonprofit fundraising Ideas & grant writing tips article so you learn how to fundraise for your organization.

Do you or Will you Operate Bingo or Non-Bingo Gaming Activities?

Be specific when describing your gaming activities. A nonprofit organization is allowed to hold gambling events, but most likely the income will be an Unrelated Business Income (Bingo excluded) unless it matches some specific criteria. Don't say no to gaming and gambling, it's a great way to fundraise. However you need to be aware of the rules and laws regarding gambling for nonprofits. If you're not sure what to say, here is an example for raffle games:

Do you or Will you Engage in Fundraising Activities for Other Organizations?

If you fundraise for other organizations be very specific and explain why you engage in such activity. As a nonprofit organization yourself, you should raise funds for your own programs and not for others. If you don't fundraise for other organizations, answer NO and move on. If you do, meaning you're organized for raising funds for causes, but have no operation of your own, that's ok, but you need to be specific.