Form 1023 Instructions Part VI: Financial Data & Budget Projection

The Form 1023 budget and financial section is a big deal. Part VI (6) accounts for about 90% of the information the IRS uses to determine whether you're a public charity or a private foundation. If you're already an existing nonprofit, this should be easy, you've got real financial data from past years, and your budget projections should practically write themselves.

But if you're a brand-new organization applying for tax-exempt status, Part VI (6) will look outrageously confusing. You have no financial history, yet you're somehow supposed to provide detailed projections. Don't get too worked up, it's for your own good.

How to Calculate and Project Your Budget on the IRS Form 1023

Even though you have no financial records, you still need to provide your past (even if it's just buying lunch for the board), your present, and at least two or three complete years into the future. This is where you and your treasurer have to get creative with budget projections and make up numbers. Yes, I said make up numbers, because there's really no other way to put it.

You're being asked to speculate, on what you'll earn, what you'll spend, and what will be left over at the end of each fiscal year.

Why Does the IRS Ask for a Projected Budget on the Form 1023?

The IRS wants to see the percentages of your proposed revenue and expenses in your Form 1023 budget, not just to verify your math, but to determine your foundation classification, whether you have unrelated business income, or if you're funneling benefits to insiders. The actual dollar amounts? They're largely irrelevant, despite what most people think.

You could submit a $10,000 revenue projection on your Form 1023 and still get denied, while someone else walks in with a $3 million budget and gets approved without a hiccup. It all comes down to how you present your numbers, and what those numbers reveal about your activities.

Once you understand what the IRS is really looking for, the next question is how to get those numbers to behave. That's where the calculator comes in.

Form 1023 Budget Projection Calculator

How to Fill Out Part VI of the Form 1023 (Financial Data)

A few Form 1023 financial budgeting tips first:

Choose Your Projections Wisely

Whatever your total projected revenue is, at least 85% of it should go toward your actual programs. If it doesn't, cut your expenses. A decent nonprofit should allocate no less than 85% of its budget to doing the work, not running the office. If you're projecting more than 15% in internal overhead, something is seriously wrong with your organization, or with your priorities.

Don't Project Too High or Too Low

Don't claim your revenue will be $180,000 a year if you know that's a long shot in hell. It's better to project small, realistic figures. The IRS isn't going to knock on your door just because you made more money than you truthfully anticipated.

Make Sure Your Numbers Match

Whatever amounts you list in the Form 1023 financial data table must exactly match the numbers in your attached budget sheet. If they don't line up, you're going to get questioned.

Form 1023 Financial Data Part VI

The following shows how your Form 1023 financial data should be presented. If you're not using my automatic budget calculator (you must be crazy), then dust off your Excel skills and start inventing formulas until you can produce something like this.

Every table should be clearly labeled, and each section must tie directly to the questions on the form. Use the actual financial table from Form 1023, but in the itemized section, write "Please see attachment", then attach a complete, detailed budget. Skip that step, and you'll get questioned into oblivion. A more hands-on explanation with real Form 1023 budget examples follows.

A) Statement of Revenues and Expenses

Gross Receipts from Admissions, Merchandise Sold or Services Performed

List each income source separately, with short, clear descriptions, estimated amounts, and three-year projections. Don't throw everything under one income category, that's just waving a flag that says we don't track our money. Identify each stream, even if it's small or irregular, and explain what it actually is: event proceeds, occasional sales, or a rare grant. The point isn't to pad the budget, it's to show that you understand how funds enter the organization.

Form 1023, Part VI - Any Expense Not Otherwise Classified (Attach Itemized List.)

List each expense item separately, with short, meaningful descriptions, amounts, and three-year projections. Calling an expense "Miscellaneous" means nothing to an IRS examiner, you might as well prewrite their clarification letter and mail them a stamp. Break down everything that isn't already explained elsewhere, but don't nickel-and-dime your way into absurdity. The goal is clarity, not chaos.

Further Breakdown of Expenses

This section is where you explain what the numbers actually represent. Don't just list "program expenses" or "supplies" and call it a day, spell them out. For example, if you budget $25,000 for program materials, describe what that includes: books, software licenses, uniforms, or equipment. If you list "professional fees," name who they're for; accountant, web designer, instructor, attorney, etc. Every vague label invites a follow-up letter from the IRS. The more you clarify here, the fewer questions you'll have to answer later.

The last part is your asset sheet if you have any assets. You need to list anything and everything that your organization owns from chairs to automobiles.