Tax-Exempt Application Process Streamlined for Small Organizations

By Alistair M. Nevius, J.D.

From the IRS

The IRS introduced a streamlined application process for small organizations that want tax-exempt status under Sec. 501(c)(3) (Rev. Proc. 2014-40). Final and temporary regulations were also issued on July 1 to allow the IRS to adopt this streamlined application process (T.D. 9674).

To apply for tax-exempt status under Sec. 501(c)(3), an organization must normally submit Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code , and a detailed statement of its proposed activities. The IRS has decided that this process is inefficient for small organizations.

The new streamlined process allows small organizations to file a simpler application form, the 2½-page Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code , which the IRS posted to its website on June 30. These organizations are also provided an exception so they do not have to provide a detailed statement of their proposed activities. Instead, part III of Form 1023-EZ asks 11 questions about the organization's specific activities.

The fee for submitting an application on Form 1023-EZ will be $400 (the fee will be adjusted by revenue procedures in the future). Form 1023-EZ must be e-filed; paper submissions will not be accepted.

To be eligible for the streamlined application process, an organization must have not had gross receipts in excess of $50,000 in any of the past three years and have projected gross receipts of not more than $50,000 in the current tax year and the next two years. Also, the organization's total assets must not exceed $250,000.

Various entities are ineligible for the streamlined application process, even if they meet the gross-receipts and assets tests. These ineligible organizations include foreign entities; entities that are not corporations, unincorporated associations, or trusts; and churches, schools, and hospitals.

Eligible organizations that have a pending Form 1023 can instead submit a Form 1023-EZ, as long as the IRS has not yet assigned the organization's Form 1023 for review. The date the organization submitted the Form 1023-EZ will then be treated as the date the organization applied for tax-exempt status. (The organization's fee for the Form 1023 will not be refunded.)

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