By: Tate Taylor and Marla Bohlander
On July 1, 2014, the Internal Revenue Service (“IRS”) released a new application form to assist small charities applying for recognition of tax-exempt status for federal income tax purposes under section 501(c)(3) of the Internal Revenue Code. The new Form 1023-EZ is three pages long compared to the standard 26-page Form 1023, which previously was the only application form available for large and small organizations alike.
The IRS currently has more than 60,000 applications from organizations awaiting a determination of tax-exempt status; many have been pending for at least nine months. The IRS believes Form 1023-EZ will help to reduce these lengthy processing times for small charities and in turn free additional resources for review of more complex, larger charitable organizations. The IRS estimates that as many as 70% of all new applicants will qualify to use the shorter, streamlined form.
Accompanying the release of the new form, the IRS issued detailed instructions and Revenue Procedure 2014-40, which together set forth eligibility requirements and procedures for organizations that desire to use Form 1023-EZ. To determine whether an organization is eligible to file Form 1023-EZ, the organization must first complete the Form 1023-EZ Eligibility Worksheet found in the instructions to the new form. An organization that answers “Yes” to any of the worksheet questions is not eligible to use the new form. Most U.S. organizations with total assets of $250,000 or less and annual or projected gross receipts of $50,000 or less are eligible to use Form 1023-EZ. However, unlike the standard Form 1023, an eligible organization using Form 1023-EZ will not be permitted to request expedited processing of the organization’s application.
A completed Form 1023-EZ must be filed electronically at www.pay.gov. Any paper submission will be considered an incomplete application. A user fee of $400 must be paid when the eligible organization files Form 1023-EZ.
The IRS will accept and process a completed Form 1023-EZ from an eligible organization that has a standard Form 1023 pending with the IRS provided that the Form 1023 has not yet been assigned for review by the IRS. The Form 1023-EZ will be treated by the IRS as a written request for withdrawal of the pending application. The user fee paid by the organization when the Form 1023 was initially filed generally will not be refunded. However, if the Form 1023 has already been assigned for review, the organization will be notified of the non-acceptance of the Form 1023-EZ and the user fee paid with the Form 1023-EZ will be refunded.
Similar to the standard Form 1023, a favorable determination letter will be issued to an eligible organization that files Form 1023-EZ if the IRS finds the attestations of the organization consistent with the requirements for exemption under section 501(c)(3) of the Internal Revenue Code. If the IRS concludes that the organization does not satisfy these requirements for exemption, the IRS generally will issue a proposed adverse determination letter that includes the rationale for the proposed denial of tax-exempt status and notifies the organization of its opportunity to appeal the proposed decision.
The release of Form 1023-EZ is widely viewed as a positive development that likely will benefit a number of new organizations by allowing them to complete a simplified application for tax-exempt status and focus more time and attention on their charitable endeavors.
