On several occasions over the past year, the IRS has publicly expressed its intention to clear a significant backlog of exemption applications. With its July 1 release of Form 1023-EZ, a shorter exemption application form for small nonprofits, the IRS took a significant step towards reducing this backlog.
Form 1023-EZ
With very few exceptions, nonprofit organizations seeking tax exemption under Internal Revenue Code Section 501(c)(3) must file an application with the IRS. Until now, all organizations were required to file the same lengthy and highly technical application – Form 1023. Form 1023-EZ, by contrast, is a significantly shorter application that will ease the burden on small nonprofit organizations.
| Form 1023 | Form 1023-EZ | |
| Pages | 26 | 3 (plus eligibility checklist) |
| Application Fee | $850 (in most cases) | $400 |
| Submission Method | Paper application | Must be filed online |
Form 1023-EZ is designed to streamline the application and review process for smaller organizations seeking tax exemption. In turn, the IRS hopes Form 1023-EZ will help reduce the backlog of exemption applications (where some organizations have been waiting upwards of a year) by freeing up resources to review applications from larger, more complex organizations.
Determining Eligibility and Filing Form 1023-EZ
The IRS anticipates that approximately 70% of applicants will qualify to file Form 1023-EZ. To determine eligibility, each applicant must complete an eligibility checklist found at the end of the Instructions for Form 1023-EZ. A “yes” answer to any of the questions requires the applicant to complete the full Form 1023. Some eligibility requirements are highlighted below.
Eligible:
- Organizations that have $50,000 or less in annual gross receipts (and anticipate the same for the next 3 years) and $250,000 or less in assets;
- Organizations that have a pending Form 1023 application (provided that application has not been assigned for review); and
- Organizations seeking reinstatement after being automatically revoked for failure to file Form 990.
Ineligible:
- Organizations seeking classification as 509(a)(3) supporting organizations;
- LLCs;
- Foreign corporations (or foreign mailing addresses);
- Hospitals and medical research organizations seeking exemption under 170(b)(1)(A)(iii); and
- Organizations seeking retroactive reinstatement after being automatically revoked.
Form 1023-EZ must be completed and filed online at Pay.gov; paper applications are not accepted. It must be electronically signed by an officer, director or trustee of the organization who is listed on the form.
Further details on the new Form 1023-EZ application process can be found in Revenue Procedure 2014-40.
If you have any questions or would like additional information about this topic, please contact Zachary G. Jacob at (317) 977-1416 or zjacob@wp.hallrender.com or your regular Hall Render attorney.
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