Perhaps the most exciting thing the IRS has ever done, the release of Form 1023-EZ has made applying for, and obtaining, 501c3 tax exempt status a relative breeze.
In our blog coverage, and if you speak with us, we’ll tell you that while you might get your determination letter in as little as two weeks, your nonprofit must be eligible to file via the new method.
At this point, we’ve beaten that fact into your heads, poor reader. Today, I’ll break down exactly what it means to be eligible, leaving your organization to decide whether to file Form 1023-EZ (or to stick to the old form).
Being eligible simply means you meet the IRS’s criteria for filing. Generally speaking, your eligibility depends on the following four things:
1) Gross Receipts and Assets: Your organization must have less than $50,000 annually in gross receipts (both historically and forecasted), and $250,000 in total assets.
2) Organizational Structure: Your organization must be formed as a nonprofit corporation, and include specific IRS provisions in the Articles of Incorporation.
You must have been incorporated, and have a physical address, in the United States. Additionally, the organization’s tax-exempt status cannot have been previously revoked.
3) Your Activities: Churches, schools, hospitals, housing providers, and foundations most likely cannot use Form 1023-EZ to file. There are several other restrictions as well; learn about them in the Instructions for Form 1023-EZ and the Eligibility Worksheet therein.
The Eligibility Worksheet is straightforward; if you mark “Yes” on any question, your organization is not eligible to file 1023-EZ.
Failure to disclose information truthfully on Form 1023-EZ and the Eligibility Worksheet can lead to your application’s being rejected, later revocation of your organization’s tax-exempt status, and even criminal penalties for perjury.
4) Preparation: Your organization must have taken significant steps before applying for tax exemption, not limited to incorporating, preparing bylaws, obtaining an EIN, making financial projections, and describing organizational activities. The IRS will need much of this information when processing your application, so either get on it, or get help.
In summary, there are a number of steps your organization must take before applying for federal tax exemption. Once you are ready, you’ll file either Form 1023 or 1023-EZ.
You can review your organization’s eligibility on the Instructions linked above. However, you still may have questions. Part of our nonprofit formation service is determining your eligibility for Form 1023-EZ, and preparing and filing the proper form for you. Give us a call, and we’d be happy to assist you.