IRS RELEASES DRAFT OF STREAMLINED FORM 1023-EZ FOR SOME SMALLER CHARITIES SEEKING TAX-EXEMPT STATUS

The IRS recently released a draft Form 1023-EZ, “Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code,” a shorter and less burdensome version of the Form 1023 for some smaller charities with no more than $200,000 in annual gross receipts or $500,000 in total assets. While many small exempt organizations will be eligible to use the Form 1023 EZ, many (notably organizations whose exemption has been revoked, hospitals, LLCs, accountable care organizations and supporting organizations — please see below for full list of exclusions) must still file the longer version of the 1023 Form.  (Form 1023-EZ Instructions)

The Office of Management and Budget is accepting comments on the form through April 30. The IRS expects the Form 1023 EZ to be in use by eligible organizations this summer.

According to the IRS, the overriding goal is to help charities streamline the initial set up process and avoid the paperwork that has sometimes delayed approval of their filings for up to a year. Additionally, the newly appointed Commissioner of the Tax-Exempt and Government Entities Division (TEGE), Sunita B. Lough, has stated that this shorter form will allow the IRS to concentrate more on operational compliance for Section 501(c)(3) organizations. Rather than placing extensive resources on reviewing the exemption applications, the IRS will spend more time reviewing the activities once charities become operational.

Organizations that cannot file the Form 1023-EZ:

  • an organization with projected annual gross receipts expected to exceed $200,000 in any of the next 3 years or has had annual gross receipts that exceeded $200,000 in any of the past two years
  • an organization with total assets in excess of $500,000
  • a foreign organization
  • an organization that is a successor to, or controlled by, an entity suspended under 501(p)
  • a limited liability company (LLC)
  • a successor to a for-profit entity
  • a previously revoked organization or a successor to a previously revoked organization (other than automatic revocation for failure to file Form 990)
  • a church or a convention or association of churches described under IRC 509(a)(1) and 170(b)(1)(A)(i)
  • a school, college, or university described under IRC 509(a)(1) and 170(b)(1)(A)(ii)
  • a hospital or medical research organization under IRC 509(a)(1) and 170(b)(1)(A)(iii)
  • an organization applying for exemption as a cooperative hospital service organization under section 501(e)
  • an organization applying for exemption as a cooperative service organization of operating educational organizations under section 501(f)
  • an organization applying for exemption as a charitable risk pool under section 501(n)
  • a supporting organization described under IRC 509(a)(3)
  • an organization with a substantial purpose of its activities to provide assistance to individuals with credit counseling activities such as budgeting, personal finance, financial literacy, mortgage foreclosure assistance, or other consumer credit areas
  • an organization investing or that plans to invest more than 5% of its assets in hedge funds
  • an organization that participates in joint ventures, including partnerships or limited liability companies treated as partnerships, in which it shares profits and losses with partners other than section 501(c)(3) organizations
  • an organization that sells or intends to sell carbon credits or carbon offsets
  • a health maintenance organization (HMO)
  • an accountable care organization (ACO), or an organization with activities that include ACO activities
  • a sponsoring organization as defined in section 4966(d)(1) that maintains or intends to maintain one or more Donor Advised Funds
  • an organization organized and operated exclusively for testing for public safety and requesting a foundation classification under IRC 509(a)(4)

If you have any questions regarding donor advised funds or charitable giving techniques, please contact Doris L. Martin or Michelle Lewis Salzman, or visit our website.

~ Submitted by M Salzman