IRS Unveils New Form for Organizations Applying for 501(c)(3) Tax-Exempt Status
by Taylor Elliott
On July 1, 2014, the Internal Revenue Service (IRS) released Form 1023-EZ as part of its efforts to streamline the application process for organizations seeking tax-exempt status. The form is specifically designed for charities who wish to be classified as exempt under section 501(c)(3). An organization must meet several criteria in order to be eligible to apply using the form, including a gross receipts test of $50,000 or less as well as an assets test of $250,000 or less. The form instructions outline additional criteria, including an eligibility worksheet that helps charities determine whether the form is right for them through a series of yes and no questions.
The IRS has indicated that the overall goal in developing Form 1023-EZ is to reduce the time and paperwork associated with providing a charity a determination as to its tax-exempt status. Previously, the IRS has been intensely criticized for a lengthy and cumbersome 1023 application process that includes an application backlog that is many months behind. Until now, all organizations, regardless of size, have been subject to the same 23-page form filled with a seemingly endless list of tedious questions, many of which are not relevant to smaller, simpler charities. After soliciting feedback from impacted parties, the IRS was able to whittle down to Form 1023-EZ, a three-page form containing only the most essential questions pertaining to determination of tax-exempt status of smaller organizations. According to IR-2014-77, as many as 70% of applicants are expected to be eligible to use this form, not only slashing the time spent by those charities in completing the application but also minimizing the time spent by the IRS in reviewing their files. The electronic filing requirement is also expected to increase the efficiency of the process. An application fee of $400 must be electronically submitted with the application as well.
For questions about this form or the tax-exempt application process in general, please contact our office. We would love to discuss with you the ways that Langdon and Company LLP can help your organization obtain and maintain a tax-exempt status.
Taylor Elliott is a tax manager with Langdon & Company LLP. She specializes in tax compliance and planning, working with several not-for-profit organizations in the Triangle area.