IRS Shortens Form for Small Nonprofits Seeking Tax Exemption

A new form introduced by the IRS on Tuesday is expected to help speed up the approval process for small charities and nonprofit groups that have applied for 501(c)(3) tax-exempt status.

The new Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, is three pages long. The standard Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, is a robust 26 pages.

“This is a common-sense approach that will help reduce lengthy processing delays for small tax-exempt groups and, ultimately, larger organizations as well,” IRS Commissioner John Koskinen said in a written statement. “The change cuts paperwork for these charitable groups and speeds application processing so they can focus on their important work.”

According to the IRS, most small organizations, including as many as 70 percent of all applicants, qualify to use the new streamlined form. Most groups with gross receipts of $50,000 or less and assets of $250,000 or less are eligible.

“Previously, all of these groups went through the same lengthy application process – regardless of size,” Koskinen said. “It didn’t matter if you were a small soccer or gardening club or a major research organization. This process created needlessly long delays for groups, which didn’t help the groups, the taxpaying public, or the IRS.”

The new form will enable the tax agency to shorten the approval process for smaller groups, which the IRS said will free up resources to review applications from larger, more complex organizations while reducing the application backlog. The IRS currently has more than 60,000 501(c)(3) applications in its backlog, with many of them pending for nine months. There are more than 1 million 501(c)(3) organizations recognized by the IRS.

The IRS refined the 1023-EZ proposal, including revising the $50,000 gross receipts threshold down from an earlier figure of $200,000, following feedback it received this past spring from the tax community and those working with charitable groups. The IRS had released a draft of the new form in late April.

“We believe that many small organizations will be able to complete this form without creating major compliance risks,” Koskinen said. “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.”

The new EZ form must be filed online, and the instructions include an eligibility checklist that organizations must complete before filing the form.

Form 1023-EZ must be filed using Pay.gov, and a $400 user fee is due at the time the form is submitted. Further details on the new Form 1023-EZ application process can be found in Revenue Procedure 2014-40.

Related article:

IRS Simplifies Tax-Exempt Applications for Small Nonprofits

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