On July 1, 2014, IRS Form 1023-EZ was released, give nonprofits a new way of applying for federal tax exemption under 501(c)(3).
At the time of the announcement, there was much uncertainty about the effectiveness and desired outcomes of this new form. A few weeks later, we have some clarity!
In this July 13 TIME Magazine article, IRS Commissioner John Koskinen discussed the new form, for which approximately 80% of applicants will be eligible.
Any organization, which has under $50,000 in revenue, $250,000 in assets, and is in compliance with tax-code requirements, is eligible to file the three-page form online. The fee is $400.
In addition, the organization must fill out a five-page eligibility checklist of its activities. While any “yes” answer disqualifies an organization from filing the “EZ” way, it does not mean the organization cannot obtain federal tax exemption. Those and other large organizations must file the original Form 1023.
Currently, the IRS has a backlog of over 66,000 applications. Combined with recent controversies and staffing cuts, the new form is a welcome relief. Koskinen estimates the change will result in 40-50,000 fewer applications per year.
What does this mean for my nonprofit?
Essentially, the IRS has stopped screening 80% of tax-exempt applications. By completing the checklist and filing online, the organization itself certifies it has read the instructions, under penalty of perjury.
Koskinen stated that organizations filing online would “automatically” be allowed to accept tax-deductible donations from donors.
Although IRS Form 1023-EZ is simpler, you must determine whether your organization is eligible. Additionally, you still must have a charitable purpose, financial statements (or projections), knowledge of planned activities, and a list of directors. Of course, you must also comply with the eligibility checklist.
One thing has not changed: organizations must research their requirements, prepare the necessary documents, and do a bit of soul-searching before filing. Good luck!
Harbor Compliance is now using Form 1023-EZ for eligible organizations!
If you are unsure whether your organization is eligible to file IRS Form 1023-EZ, would like us to file for you, or are only starting your nonprofit, give us a call. We are happy to help!