On July 1, 2014, the Internal Revenue Service ("IRS") released the much anticipated Form 1023-EZ, a shorter application that provides a quicker, more streamlined process for smaller organizations applying for recognition of exemption under Section 501(c)(3) of the Internal Revenue Code (the "Code"). The IRS also released Revenue Procedure 2014-40, which details the procedures for using the Form 1023-EZ, and final and temporary regulations to allow for a new, streamlined 501(c)(3) application. This should be a welcomed procedure for smaller charitable organizations and grant-making entities waiting for potential grantees to obtain recognition of their tax-exempt status.
What You Need to Know
General Rule. Unless specifically excepted, all organizations seeking to be recognized as tax-exempt under Section 501(c)(3) of the Code must apply to the IRS by filing a Form 1023. For certain smaller, eligible organizations, Form 1023-EZ is an alternative to the lengthier Form 1023.
Form 1023-EZ. The Form 1023-EZ is a three-page application that is electronically filed using pay.gov. It is an alternative to the twenty-six page highly technical paper Form 1023. The Form 1023-EZ allows an eligible organization to attest that it qualifies for recognition as tax-exempt under Section 501(c)(3). Unlike the Form 1023, the Form 1023-EZ is essentially a certification process—the Form 1023-EZ does not require a filing organization to submit financial data or organizing documents. Filing organizations are required to submit a $400 user fee with their applications.
Organizations Eligible to Submit the Form 1023-EZ. A domestic, charitable organization with assets valued at $250,000 or less and annual gross receipts of $50,000 or less may submit Form 1023-EZ unless it is not eligible, as described below.
Organizations Not Eligible to Submit Form 1023-EZ. All organizations seeking to submit Form 1023-EZ must complete an eligibility checklist that is part of the Form 1023-EZ Instructions. Many organizations are not eligible to submit Form 1023-EZ, notably:
- a church or a convention or association of churches;
- a school, college, or university;
- a Section 509(a)(3) supporting organization;
- an organization investing or that plans to invest more than 5% of its assets in hedge funds, or 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;
- a health maintenance organization (HMO); an accountable care organization (ACO); or an organization with activities that include ACO activities;
- a foreign organization; a limited liability company (LLC); a successor to a for-profit entity;
- a private operating foundation; or
- a previously revoked organization or a successor to a previously revoked organization (other than automatic revocation for failure to file Form 990).
Organizations with Automatically Revoked Tax-Exempt Status. Consistent with the eligibility requirements of Form 1023-EZ, certain qualified organizations requesting reinstatement of Section 501(c)(3) status for having their tax-exempt status automatically revoked for failing to file a Form 990 for three consecutive years may apply for reinstatement using Form 1023-EZ. Nonqualified organizations must still apply for reinstatement using Form 1023.
Organizations with a Pending Form 1023. Organizations that have already filed a Form 1023 may submit a Form 1023-EZ if their Form 1023 has not been assigned to an IRS agent for review. In such cases, the original Form 1023 will be withdrawn and generally no refund will be issued. If the Form 1023 has already been assigned to an IRS agent for review, the IRS will not accept the Form 1023-EZ.
What You Should Do Now
Newly formed, charitable organizations that have not yet filed a Form 1023 should determine if they are eligible to file the new Form 1023-EZ. Charitable organizations with pending Form 1023 applications should determine if their application has been assigned to an IRS agent for review. If the application is unassigned, these organizations may be able to obtain recognition of their tax-exempt status sooner by filing a Form 1023-EZ. While the timeline for the IRS issuing determination letters is still unclear, the Form 1023-EZ should be a quicker and less painful process for eligible small organizations.
- The New Form 1023-EZ can be found here.
- The New Form 1023-EZ Instructions can be found here.
- Revenue Procedure 2014-40 can be found here.
For More Information
If you have questions regarding Form 1023-EZ, please contact: