In July of 2014, the Internal Revenue Service issued Form 1023-EZ to allow charitable organizations seeking recognition of tax-exempt status under Section 501(c)(3) an easier, online, three page application.
Prior to the new 1023-EZ, organizations seeking recognition of tax exempt status had to complete the lengthy twelve (12) page Form 1023. Not all organizations can utilize the 1023-EZ, but for those that can, the process is streamlined and responses from the IRS are typically much quicker.
The big question is who can use the simplified process. Along with the 1023-EZ, the IRS issued instructions which detail the type of organization that can use this method of application. If the applicant answers “no” to all of the questions on the Form 1023-EZ eligibility worksheet, the applicant may use the streamlined application procedure. Specifically, to use the Form 1023-EZ, total assets cannot exceed $250,000 and the annual gross receipts for the prior three (3) years or projected receipts for the next three (3) years, cannot exceed $50,000. The organization must be formed in the United States territories and possessions and cannot have a foreign mailing address.
However, if the organization is a church (as described in § 170(b)(1)(A)(i)), a hospital or medical research organization, a school, college or university, a Limited Liability Company (LLC), a successor to a for-profit entity or a private foundation, such organization must use the traditional Form 1023. Furthermore, if an organization was previously denied recognition of tax-exempt status or had status revoked, use of the online process is not an option. Unlike the Form 1023, the Form 1023-EZ can only be filed electronically. The IRS will not accept printed copies of the submitted application. There is a user fee of $400 required to process the application and it must be paid through www.pay.gov. Prior to applying, the organization must have an Employer Identification Number (EIN), which can also be obtained online. Finally, if the organization files the Form 1023-EZ within 27 months of formation and the application is approved, tax exempt status for the organization will be retroactive to the legal date of formation.
The use of the new Form 1023-EZ may be an organization’s answer to quickly obtaining recognition and getting on with advancing its charitable purposes in the community. IRS recognition of tax-exempt status facilitates grant requests and fundraising by the charities. Using the new streamlined process may not be for all organizations, but an assessment by an attorney who regularly assists clients with preparation of the Form 1023 can determine if the Form 1023-EZ is an available option.