IRS Releases Streamlined Application for Tax-Exempt Status

by Foley Hoag LLP
Contact

The Internal Revenue Service (the “IRS”) has significantly streamlined the application process for small nonprofits seeking recognition as tax-exempt 501(c)(3) organizations through the release of a new application form on July 1.

The IRS’s Exempt Organizations division currently has more than one year’s worth of backlogged applications for tax-exempt status. Resource constraints at the IRS have made it challenging to reduce this backlog. Streamlining the application process for smaller nonprofit organizations may help address this long-standing issue.

The new Form 1023-EZ, which must be filed online at www.pay.gov with a $400 filing fee, is only three pages in length as compared to the current 26-page Form 1023 and is designed to take significantly less time to complete. IRS review of applications using the new form is anticipated to be correspondingly faster.

To be eligible to use the Form 1023-EZ, an organization must qualify as a public charity or private foundation, have current or projected gross annual receipts of no more than $50,000, have total assets of no more than $250,000 and meet certain other criteria. Larger charitable organizations with income or assets above these thresholds, foreign organizations, churches, schools and hospitals are not eligible to use the Form 1023-EZ. The instructions to the Form 1023-EZ include an eligibility checklist that organizations must complete before filing the form. The IRS estimates that as many as 70% of all applicants for tax-exempt status may be eligible to use the new form.

The Form 1023-EZ, which hews closely to the draft form released by the IRS in April 2014, requests summary representations from applicants. Further, in contrast to the full Form 1023, the Form 1023-EZ does not require the applicant to provide budgeting and financial projections, detailed information regarding its activities or disclosure of the details of its compensation arrangements.

In this way, the Form 1023-EZ shifts a fair amount of the compliance burden for smaller organizations back onto the organizations themselves. The written narratives, financial information and governance disclosures that are required as part of the full Form 1023 offer a general roadmap for applicants to organize themselves in accordance with applicable laws and regulations. Organizations completing Form 1023-EZ will not have this roadmap and, therefore, will bear greater responsibility for educating themselves and working with their legal and financial advisors to ensure organizational and operational compliance with the rules applicable to tax-exempt organizations.

With the IRS exercising a much more cursory review of organizations before issuing determination letters, potential donors may also need to be more careful in vetting organizations that have received tax-exempt status using the Form 1023-EZ.

Organizations that have a Form 1023 pending with the IRS that has not yet been assigned for review may submit a Form 1023-EZ (along with the $400 filing fee). The IRS will treat this as a withdrawal of the originally filed Form 1023, and the effective date of the organization’s application will be the date that the Form 1023-EZ was submitted to the IRS.

If an organization is applying for exemption as a 501(c)(3) organization, and submits its Form 1023-EZ within 27 months of the end of the month in which it was formed, it may be exempt as a 501(c)(3) organization from its date of formation. If the organization does not submit its Form 1023-EZ in this time period, its exemption as a 501(c)(3) organization may commence no earlier than the date that the Form 1023-EZ was submitted. Thus, an organization whose Form 1023 continues to be pending beyond that 27-month deadline may not want to withdraw its Form 1023 by submitting a Form 1023-EZ, since that would forfeit its opportunity to be recognized as a 501(c)(3) organization from the date of its formation.

In addition, an organization whose tax-exempt status was revoked due to a failure to annually file the required Form 990 may be eligible, in certain circumstances, to use Form 1023-EZ to reapply for tax-exempt status if otherwise qualified.

Additional guidance regarding Form 1023-EZ is included in Revenue Procedure 2014-40.

 

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.

© Foley Hoag LLP | Attorney Advertising

Written by:

Foley Hoag LLP
Contact
more
less

Foley Hoag LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!