On July 1, 2014, the IRS released Form 1023-EZ, a short form online application for small organizations seeking a determination of tax-exempt status under IRC 501(c)(3). For organizations with actual and projected annual gross receipts of $50,000 or less, the new Form will serve to minimize the complexity of applying for exemption. And perhaps more important to the IRS, it will help the Service process the 60,000 or so applications it receives each year in a more reasonably timely manner and get through the current backlog that has resulted in an average processing time of 9 months.
An earlier draft of Form 1023-EZ submitted for public comment contemplated an annual gross receipts eligibility threshold of $200,000. But this draft received criticism from many sources, including from the author (see our earlier post Proposed Form 1023-EZ). Restricting its use to very small organizations helps alleviate some, but not all, of the policy concerns.
In the IRS press release, IRS Commissioner John Koskinen explained: “We believe that many small organizations will be able to complete this form without creating major compliance risks. Rather than using large amounts of IRS resources up front reviewing complex applications during a lengthy process, we believe the streamlined form will allow us to devote more compliance activity on the back end to ensure groups are actually doing the charitable work they apply to do.”
You must answer “No” to all 26 Questions on the Form 1023-EZ Eligibility Worksheet starting on page 11 of the Instructions for Form 1023-EZ, including:
- Do you project that your annual gross receipts will exceed $50,000 in any of the next 3 years?
- Have your annual gross receipts exceeded $50,000 in any of the past 3 years?
- Do you have total assets in excess of $250,000?
- Were you formed under the laws of a foreign country (United States territories and possessions are not considered foreign countries)?
- Are you a limited liability company (LLC)?
- Are you a successor to a for-profit entity?
- Are you a church or a convention or association of churches described in section 170(b)(1)(A)(i)?
- Are you a school, college, or university described in section 170(b)(1)(A)(ii)?
Final Regulations (update June 30, 2017)
Final Regulations Provide Streamline Tax-Exempt Status Application Process (T.D. 9819)