IRS Simplifies Exemption Requests for Small 501(c)(3) Organizations

Shirley WalkerBy Shirlee Walker, CPA, Shareholder

It’s now easier to create a nonprofit organization since the Internal Revenue Service (IRS) issued the Form 1023-EZ in July 2014. This streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code can be used by small tax-exempt organizations applying for tax exemption under IRC 501(c)(3). An organization that qualifies for exemption under 501(c)(3), normally has gross receipts of less than $50,000, less than $250,000 of assets and would be eligible to file an annual report on Form 990N can use this new Form 1023-EZ to apply for tax-exempt status.

The form itself is only three pages compared to Form 1023’s 12 page base form. The Form 1023-EZ user fee is $400 compared to the Form 1023’s $850. The applicant must attest they have completed the 15 question Eligibility Worksheet included in the instructions to Form 1023-EZ. This process has eliminated the need for IRS employees to review the documents and make an eligibility determination for the applicant.

In addition, the form 1023-EZ and the user fee must be electronically filed. The IRS will not accept printed copies and the turnaround time for the IRS to approve the tax-exempt status is around two months versus 18 months with the Form 1023. If the Form 1023-EZ is filed within 27 month after the organization was legally formed, the exemption will be retroactive to the date of formation. The applicant must be legally organized to operate as a tax-exempt organization with a mission, board members and documents that insure the assets will be used for its tax-exempt purpose.

If you are interested in learning more about the new streamlined nonprofit application process, please contact Shirlee Walker, CPA, Shareholder, by email or at 406.721.7800.

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