Application For Tax Exempt Status To Be Eased By IRS – Except For The Tea Party


In 2013, the IRS revealed that it had selected ”social welfare” groups (like the Tea Party) applying for tax-exempt status for closer scrutiny.  That investigation is still ongoing and it has given the IRS a black eye.

The Tea Party is a 501(c)(4) organization – not your traditional 501(c)(3) which must be “organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.”

The IRS also made applying for 501(c)(3) status a major pain.  In order to obtain recognition of exemption from federal income tax under 501(c)(3) of the code, an organization must generally file the 26-page IRS Form 1023.

But we will soon have an easier way to file for smaller organizations.  Here is the recent draft form – f1023ez.

In order to qualify for the 1023 EZ you must:

  1. Have no more than $200,000 of projected annual gross receipts in any of the next three years
  2. Annual gross receipts of not more than $200,000 in any of the past two years
  3. Total assets not in excess of $500,000.

Additionally, there are also a number of types of non-profits that are generally ineligible for this simplified form:

  • Churches
  • Schools
  • Hospitals
  • Credit counseling organizations
  • Other miscellaneous organizations

If you file the 1023 EZ within 27 months of formation, and the IRS approves your application, then the effective date of the exempt status will be the date of formation.  If you fail to file within the 27-month period, then your exempt status will be effective on the date of filing the 1023 EZ.

I generally applaud the IRS for easing this burden.  However, lots of commentators have noted that too much simplicity could help organization qualify as exempt that really shouldn’t qualify in the first place.

Fraud in the nonprofit world is rampant.  Time will tell if the simplified form creates problems.

Topics:  Exempt Organizations, IRS, Tax Exemptions

Published In: Nonprofits Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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