On July 1, 2014, the IRS introduced a new, shorter application form for smaller charities to use to apply for 501(c)(3) tax-exempt status more easily. The new Form 1023-EZ is only three pages long, compared with the 26 pages included in the standard Form 1023. According to the IRS, “The change will allow the IRS to speed the approval process for smaller groups and free up resources to review applications from larger, more complex organizations while reducing the application backlog.”
Most organizations with total assets of $250,000 or less and gross receipts of $50,000 or less are eligible to use the Form 1023-EZ. Exceptions to these parameters include churches, schools, colleges or universities, health maintenance organizations, foreign organizations, as well as a few others.
While it seems the Form 1023-EZ is just what we need to help small organizations gain tax-exempt status, in the tax practitioner community, there is concern about fraud and abuse relating to the new form since there will be so little oversight of the applications. The IRS has argued that they will shift their focus to enforcement on the back-end, that is, more audits of non-profits who have qualified for their status by filing a Form 1023-EZ. In addition, there is concern that the Form 1023-EZ will result in large numbers of poorly conceived and ill-prepared non-profits that never would have followed through with filing the standard Form 1023.
The IRS user fees charged for a Form 1023 are $850.00. The user fees for the Form 1023-EZ are reduced to $400. The Form 1023-EZ must be filed online using www.pay.gov. The user fee is due at the time the form is submitted.