The Internal Revenue Service (IRS) has introduced a new, shorter form of the exemption application for Section 501(c)(3) status—the Form 1023-EZ. Previously, most organizations seeking federal income tax exemption under Section 501(c)(3) were required to complete the full 26-page (plus attachments) Form 1023, regardless of their anticipated funding or the complexity of their activities. The new form should simplify the application process for applicant organizations and streamline (and hopefully expedite) IRS review.
According to IRS estimates, as many as 70 percent of all applicant organizations will qualify to use the new form. Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible. However, the following organizations are specifically listed as ineligible: churches, schools, colleges, hospitals, supporting organizations, credit counseling organizations, HMOs, ACOs, limited liability companies or LLCs, successors to for-profit entities, and organizations that will enter into certain partnerships or joint ventures with non-501(c)(3) organizations.
The new form must be filed online with a $400 filing fee, and instructions include an eligibility checklist to complete prior to filing. The form does not require the inclusion of detailed financial statements (i.e., budgets and a balance sheet) or a description of activities.
The adoption of the new form has been the subject of much debate among exempt organization practitioners, many of whom have concerns that it will not provide sufficient information to the IRS to determine whether an applicant should be exempt. Others worry that the new form no longer compels applicants to consider many issues regarding proposed activities and governance. Undoubtedly (and as noted by the IRS), the new form will result in a greater level of monitoring by the IRS of organizations that use it. It is important to note that the Form 1023-EZ, like the Form 1023, is subject to public disclosure; applicant organizations will need to be cognizant of this requirement and print the submitted form for their records.