Tax Law Blog: New Simplified Application Form for Small Nonprofits

The IRS is releasing a new Form 1023-EZ, a simpler form of the regular Form 1023 used to apply for tax-exempt status as a 501(c)(3) organization. The form is available to small organizations, specifically those with less than $200,000 in actual and projected annual gross receipts, and total assets of less than $500,000. There are certain exclusions on types of organizations not eligible to file, including hospitals, churches, schools, credit counseling organizations, among others. The list of ineligible entities will be included in the instructions, once they are released. The instructions also include an eligibility worksheet which should be completed to determine whether an organization is eligible to file Form 1023-EZ.

The theory behind the new form is to enable small organizations to get operating and obtain a tax exempt status determination more quickly, by shortening both the time it takes for the organization to complete the form and also the time it takes the IRS to review the form. The IRS then will spend more time ensuring compliance once tax exempt status has been granted. As part of the application process, the organization will classify itself using a 3 digit NTEE Code based on a list provided in the instructions. 

You may or may not have noticed that the IRS typically estimates the time it will take a taxpayer to complete a particular form. The IRS estimates the regular Form 1023 (a 25 page form) takes 101 hours to complete. The new Form 1023-EZ (a 3 page form) is estimated to take 14 hours to complete. The form appears to limit the amount of supporting material required, such as governing documents, narrative descriptions and financial information. Presumably there will be a different user fee for this form than the current tiered user fee system which determines the fee based on whether projected receipts were above or below $10,000 annually.

The draft form is available now, but cannot be filed. The final form is expected to be released yet this summer.

 

Topics:  501(c)(3), Churches, Credit Counselors, Form 1023 EZ, Hospitals, IRS, Non-Profits, Tax Exempt

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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