News of the recent release of IRS Form 1023-EZ has spread like wildfire. Introduced in July, the form, designed to streamline the application and approval process for federal tax exemption, has triggered a number of questions throughout the nonprofit world.
Among the most pressing are, “Will this create new, superfluous, and even unregulated nonprofits?,” “How does this affect my existing organization?,” and “How will this affect the nonprofit industry as a whole?”
Here at Harbor Compliance, we are not macroeconomists. We won’t speculate on how this might change the landscape of the nonprofit industry.
Today, what we will do is answer the question, the one that everyone really wants to know: “Is the IRS processing these applications as fast as they said they would?”
We’ll also discuss using IRS Form 1023-EZ as a means to tax exemption, rather than an end. More on this, in a moment.
So How Fast Is It?
From the date of submission, our first few clients received their determination letters in about two weeks. Go ahead, hear it straight from them.
Now sit back down, please. Before you run off and try to obtain tax exemption this afternoon, consider this to be a “best case scenario.”
These clients, as do all of our clients, worked with one of our consultants to determine the organization’s eligibility to file IRS Form 1023-EZ, for which the requirements are numerous. Moreover, they carefully prepared financial projections, detailed the scope of their activities, and generally were “on the ball” in providing the information we needed to file with the IRS.
Do keep in mind that preparing the necessary information by yourself (before you file) can still take your organization several weeks or months. Filing Form 1023-EZ online simply makes submitting that same information easier. It is the IRS’s processing time, not your preparation time, which is reduced!
Additionally, this was the first wave of applications for the IRS. It is entirely possible that even these expedited filings could get backed up.
At the moment, however, the processing time for IRS Form 1023-EZ is significantly less than the 9-12 months one might wait having filed the original Form 1023.
Selecting a Form to File
While the name “Form 1023-EZ” suggests ease, only the method of filing itself is “easier.” The amount of knowledge and preparation leading up to filing remains the same. If anything, the amount of preparation increases, as an organization now has yet another filing option to consider.
In considering Form 1023-EZ, an organization must review its eligibility using the IRS eligibility worksheet, either by itself, or with assistance. Moreover, failure to disclose information truthfully on the form can lead to a rejected filing, or even a penalty of perjury.
Moreover, an eligible organization might decide to forgo the new form, and to file the original Form 1023. Perhaps the founders want to disclose more information to the IRS, such as detailed financial forecasts, or a description of activities in years to come.
An organization must understand the difference, and make a decision between the two forms. The goal is tax exemption, but the means to apply for it depend on an organization’s mission, current activities, and plan for growth. The paperwork and decisions can be overwhelming, but don’t worry, help is allowed!
If you need assistance determining your organization’s eligibility, or with other nonprofit filings, learn how we can help.