IRS Takes It EZ on Start Up Charitable Organizations
Anyone who has formed a charitable organization knows the long, sometimes painfully slow process by which the IRS reviews an application for tax exempt status. Whether the charitable organization you are forming is a religious organization, fraternal organization, or arts organization, the doorway to tax exempt status was the same: the Form 1023.
The Form 1023 is thirty one dense pages of instructions, tables, worksheets and definitions all written and presented with the style, grace and wit for which the IRS has become famous.
For a startup charitable organization, it may be cost prohibitive to retain legal counsel who can navigate the Form 1023 process. And after navigating that lengthy process, the successful outcome is a Determination Letter from the IRS granting non-profit status under Section 501(c).
It can be time-consuming, costly, and somewhat frustrating. For these start ups, not having your tax-exempt a termination letter in hand can mean potentially losing donations. From a fundraising standpoint, one needs to be able to point to IRS documentation that a donor can rely on for their own tax planning.
Mercifully, there is a faster and easier solution: the Form 1023-EZ. The official name for the form is straightforward: Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.
The purpose of the Form 1023-EZ process is to streamline the approval process for start up charitable organizations to obtain their Determination Letters. At a mere three pages in length, the Form 1023-EZ must be filed electronically. The filing fee is also reduced to $400 (the Form 1023 filing fee is $850).
This is important: only certain organizations are eligible to make use of the Form 1023-EZ. Generally, the organizations eligible to use the form are those whose annual gross receipts are less than $50,000 during any of the past three years and whose projected gross receipts for the current year and next two years are below that threshold. In addition, eligible organizations may not have total assets exceeding $250,000.
The IRS guidelines provide other criteria which would render an applicant ineligible to use the new form: colleges, universities, hospitals, churches and many others.
If you are in the process of starting up a charitable organization, or are thinking of applying for tax exempt status, please keep the Form 1023-EZ process in mind.
Non-profit executives and Boards of Directors take note: the fact that there is a streamlined process available is not a substitute for experienced legal counsel in the preparation of the application or in the governance of the organization.
Bryan Tuk is a member of the firm’s Business and Corporate Law and Banking Law practice groups. You can follow Bryan on Twitter @bryantuk or email him at btuk@eastburngray.com.
