If you have clients with tax-exempt status and you want a simpler way to file their returns, the IRS has found a way. The agency recently released instructions for Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.
The form is the easier version of Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. And, the IRS makes clear that only certain organizations are eligible to file Form 1023-EZ.
Applicants can determine their eligibility to file Form 1023-EZ by completing the eligibility worksheet. Answering “yes” to any of the questions requires applicants to file Form 1023. Answering “no” to all of the questions allows applicants to file using Form 1023-EZ.
Before completing either form, the IRS recommends reading “Life Cycle of an Exempt Organization” at irs.gov/Charities.
Most organizations that seek exemption from federal income tax under Section 501(c)(3) must submit an application. But some organizations may be considered exempt under that section without filing Forms 1023 or 1023-EZ. They include churches (and synagogues, temples and mosques), integrated auxiliaries of churches and conventions or associations of churches; and any organization that has gross receipts in each taxable year of not more than $5,000.
The instructions now require that organizations tell the agency about their mission or most significant activities.
The IRS notes that choosing the correct foundation classification on Form 1023-EZ is key. Different operating rules apply to public charities and private foundations, and most organizations filing under Section 501(c)(3) are public charities.
The agency notes that applicants for retroactive reinstatement under Section 4 of Revenue Procedure 2014-11, who were automatically revoked and seek a foundation classification different from the one they had at the time of revocation, must file Form 1023.
The IRS also advises applicants not to include Social Security numbers on the forms. That’s because the agency is required to disclose approved exemption applications and information returns. Documents subject to disclosure include correspondence with the IRS about the filing.
The 2018 form has not yet been posted on the IRS website.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.