The IRS recently issued Form 1023-EZ for use by certain nonprofit organizations applying for tax-exempt status under Section 501(c)(3). With the IRS’ tax-exempt unit under recent political scrutiny, a nonprofit organization filing the regular Form 1023, Application for Tax-Exempt Recognition, can expect to wait for several months or even a year for approval. The goal of the Form 1023-EZ is to expedite the filing and approval process for smaller organizations, which should hopefully also reduce the application time for larger organizations given the resulting decrease in overall paperwork.
Form 1023-EZ can only be used by organizations with gross receipts of $50,000 or less, and assets of $250,000 or less. Additionally, churches, schools, and hospitals are prohibited from using Form 1023-EZ regardless of gross receipts or assets.
Form 1023-EZ is three pages long, as compared to the 26 page Form 1023. Form 1023-EZ must be filed online, and there is a $400 user fee due at the time of submission of the Form. There is also an eligibility worksheet that an organization must first complete to ensure that it is eligible to use Form 1023-EZ.
The IRS estimates that as many as 70% of all tax-exempt applicants will qualify to use the new Form 1023-EZ. Although this streamlined process has the potential to benefit many smaller organizations, the brevity of the Form also increases the risk of fraud and misuse by charities that do not really meet the requirements for tax-exempt status. Smaller organizations should still consult with an attorney to ensure that the organization’s documents and operations comply with these requirements.