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Streamlined Tax-Exempt Application Process Introduced

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The IRS introduced on Tuesday 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.)