The Internal Revenue Service has issued Revenue Procedure 2014-40 detailing the procedures for use of the new Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.  The relevant proposed regulations have also been finalized.  The new online-only Form 1023-EZ simplifies the exemption application process for eligible organizations.  An organization with a pending Form 1023 application may in some situations submit a superseding Form 1023-EZ.

Reductions and Differences

The IRS announced the new form and the guidance in IR-2014-77, trumpeting the 3-page length of the Form 1023-EZ, far slimmer than the 26-page standard Form 1023.

Unlike the longer version, Form 1023-EZ does not require applicants to submit of the articles of incorporation or association, corporate bylaws, trust agreement, or conflict of interest policy.  Instead, it asks that the applying organization attest to having the necessary organizing documents and that they appropriately provide for exempt purposes and limitations on dissolution.

Also unlike the long-version Form 1023, the online Form 1023-EZ does not ask for a budget accounting of receipts, expenditures, or current assets.  However, it does require applying organizations to complete a Form 1023-EZ Eligibility Worksheet, which is provided in the new Form 1023-EZ Instructions.

The form also asks organizations to identify their organization’s activities by the appropriate National Taxonomy of Exempt Entities (NTEE) code.  The IRS includes a list of NTEE Codes in the instructions.

Eligible Organizations

The Eligibility Worksheet provides a laundry list, taken from Rev. Proc. 2014-40, of twenty-five different situations where organizations would not be eligible for Form 1023-EZ, including schools, hospitals, and foreign organizations.  The new form is not available to organizations with projected annual gross receipts of more than $50,00 in the current year or in either of the next two years, nor to organizations with more than $50,000 gross receipts in any of the past three years.  Organizations with total assets have a fair market value greater than $250,000 are similarly ineligible to use the form.  Those receipts and assets cutoffs are significantly lower than the Draft Form 1023-EZ from early 2014, which set the eligibility thresholds at $200,000 annual receipts and $500,000 total assets.

Application Process

The Form 1023-EZ may only be submitted online at www.pay.gov with a $400 user fee.  Paper submissions will be considered incomplete.  The regular Form 1023 has a user fee of $850 and a reduced fee of $400 for organizations with average annual receipts not more than $10,000.

Organizations eligible to use the Form 1023-EZ may still elect to use the traditional long-version Form 1023.  Eligible organizations that have already submitted the Form 1023 may submit the Form 1023-EZ to supersede the earlier application, but only if the Form 1023 has not already been assigned for review.  The IRS will treat such a Form 1023-EZ as a withdrawal of the earlier Form 1023, but there is no refund of the first user fee.  The filing date of the application will become the later Form 1023-EZ date, not the earlier Form 1023 date.  The 27-month rule is not extended for these purposes.  If the Form 1023 has already been assigned for review when a Form 1023-EZ arrives to supersede it, the IRS will reject the later application and refund the second user fee.

Comment

The IRS has requested comments on Rev. Proc. 2014-40 for use in making future updates to the procedure.