The IRS has slashed the application fee small charitable organizations are required to pay when applying for tax-exempt status.
According to Revenue Procedure 2016-32, the IRS reduced the user fee from $400 to $275 for Form 1023–EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.
The new fee went into effect on July 1.
Charities must pay the fee through www.pay.gov when the application is filed. Payment can be made directly from their bank account or by credit or debit card.
Form 1023-EZ is available to small charities with an annual income of $50,000 or less and assets under $250,000.
The IRS introduced the three-page form in July 2014. With Form 1023-EZ, the IRS envisioned a shorter approval process for smaller groups seeking tax-exempt status, which would reduce the agency’s application backlog.
However, critics have said the form oversimplifies the charitable exemption process and could lead to an increase in charity fraud and abuse.
In its Form 1023-EZ First Year Report, the IRS noted that the streamlined application process was used by more than half of all exemption applicants during its first year.
The average processing time for Form 1023-EZ was 13 days, compared to the average processing time of 192 days for the 26-page Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code,during the same six-month time period (October 2014 to March 2015).
In addition, the IRSapproved 95 percent of all Form 1023-EZ applications submitted and closed during the first year, according to the report.