IRS Form 1023 Part VII (7) Organization History, 27 Months Rule
In Form 1023 Part VII (7) – Your organization’s history gives the IRS the ammunition to deny or approve the application.
Form 1023 Part VII (7) – Are you a successor to another organization? Answer “Yes,” if you have taken or will take over the activities of another organization; you took over 25% or more of the fair market value of the net assets of another organization; or you were established upon the conversion of an organization from for-profit to nonprofit status. If “Yes,” complete Schedule G.
At the start of these articles, I made it very clear that this website does not deal with those who have dipped their toes in the for-profit sector before going nonprofit. I will not provide advice to this class based on personal preference.
If you are a nonprofit (not a successor to a for-profit entity) which is unlikely, and not claiming exemption for prior periods, you can just apply normally. In this case, you qualify for tax exemption as an organization described in section 501(c)(4) for the period beginning with the date you were legally formed and ending with the date you are recognized under section 501(c)(3). Generally, contributions made to a section 501(c)(4) organization are not tax deductible.
Form 1023 Part VII (7) Line 2. Are you submitting this application more than 27 months after the end of the month in which you were legally formed? If “Yes,” complete Schedule E.
Now as for the 27 month rule, in general, an organization has 27 months after its formation to apply for tax exemption status in order to be exempt from paying taxes from the date of its incorporation. If you have missed a giant 2 and ¼ years window, you should have a damn good explanation, but that doesn’t mean you can’t apply. It only means that in case you’re approved, the IRS won’t backdate your exemption, and the date of the exemption will be the approval date of the 501c3 status. And Yes, you need to complete the Schedule E.