New 1023-EZ Form: the Good, the Bad, and the Ugly

If you are or will be filing for 501(c)(3) tax exemption, heads up!

On July 1, the IRS released the much anticipated and hotly debated Form 1023-EZ, which simplifies the process of obtaining 501(c)(3) tax exemption.

The form is three pages, as opposed to its predecessor’s twenty-six. The purpose: speed up the approval process for small organizations, and free up the IRS’s resources for reviewing large, more complex organizations.

Organizations with less than $50,000 in gross receipts, and assets less than $250,000 are eligible to file 1023-EZ. Larger organizations must still file the original Form 1023.

Form 1023-EZ can only be filed online, and must be accompanied by an Eligibility Checklist. The fee for submitting this form is $400.

You can view the forms and the entire process for filing on the IRS website, and can read the full press statement here.

Yes, it’s a still from the wrong movie. Clint Eastwood doesn’t care.

The Good:

Small organizations can feel a bit relieved. The IRS has taken steps to separate less complicated applications from the more complex, in order to reduce processing times.

Online filing is an added convenience, and it is not done on the IRS’s notoriously buggy website. You create a user account, search for forms, and get to work (which you can save). Hopefully, the site will be able to handle the increased traffic.

The Bad:

As always, the application process still requires a TON of research and preparation. Before filing, you must have a clear purpose, financial projections, planned activities, a list of directors, and much more (see the forms and instructions for details). Additionally, the Eligibility Checklist, not even part of Form 1023-EZ itself, is five pages long. We highly encourage you to seek assistance in preparing and filing this application!

Also, large organizations still must file Form 1023, which currently has about a 9-12 month processing time.

The Ugly:

Right now, the IRS has 60,000 applications in its backlog. In our experience, that roughly translates to a 9-12 month delay. The IRS believes the new form will free up resources and will reduce processing times for all applications, though by how much remains to be seen. Stay tuned for updates!

We specialize in nonprofit formation and obtaining both federal and state tax exemption. We can help you determine your eligibility for, and file using Form 1023-EZ. Visit our service page to learn more.

UPDATE: July 17, 2014 – Read more on this topic here

UPDATE #2: With Form 1023-EZ, IRS Determination Letter Arrives in Weeks