IRS Review of Form 1023 and Release of Form 1023-EZ

The IRS has been under pressure to reduce the amount of time it is taking them to review and approve exemption applications. The IRS is currently reviewing exemption applications filed in July 2013. While they are making progress, there is still room for improvement. As part of the Exempt Organizations unit reorganization, most of the exemption applications will now be sent to the Cincinnati office for review. The only applications that will stay with the technical unit in D.C. are those related to tax-exempt hospitals, certain 501(c)(4) organizations, and those where technical assistance is requested.

The IRS recently released a draft Form 1023-EZ (streamlined application). This new form is a 2-page document designed to be less burdensome for organizations to complete. Currently, organizations seeking 501(c)(3) status must file Form 1023, consisting of up to 26 pages depending on which schedules are filed. However, not all organizations will qualify to file the shorter form. Some of the organizations specifically excluded from using the short form include churches, schools, supporting organizations, credit counseling organizations, and those who have been previously revoked. In order for organizations to use the Form 1023-EZ, they must meet the following criteria:

•No more than $200,000 of projected annual gross receipts in any of the next three years;
•Annual gross receipts of not more than $200,000 in any of the past two years; and
•Total assets not in excess of $500,000

The draft 1023-EZ asks for information on the officers and directors of the organization, legal formation, whether or not the governing documents include the required provisions for exemption, the charitable purpose, activities conducted, and what type of classification the organization is seeking. Filers must check a box to certify they will not conduct activities that would violate the tax-exempt status. The form identifies these items in a bulleted format. The purpose of this shorter form is to allow smaller organizations to streamline the application process. While this seems to be a step in the right direction for small organizations, it does raise the question on whether the information gathered will be enough for the IRS to truly ensure the organization will be organized and operated for exempt purposes.

2 comments on “IRS Review of Form 1023 and Release of Form 1023-EZ

  1. Sandy Deja says:

    Organizations that have been “automatically revoked” because of failure to file form 990 will be eligible to file Form 1023-EZ. A new draft of the form has been released with a section to be completed by these applicants. (Other types of revoked organizations remain ineligible.) Form 1023-EZ will be much easier to complete because it does not require financial data or a narrative description of activities.

    • Deb Nelson says:

      Sandy – thanks for your comment. Based on the new draft I agree that those who have been automatically revoked still qualify to file the form. I’m glad to see that change was made as it will affect a large number of small organizations.

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