Changes Coming to Short-Form 1023-EZ

Early next year, the IRS is planning to implement some changes to the Form 1023-EZ that will require users to incorporate a bit more information. These changes were spurred by concerns voiced by the National Taxpayer Advocate and others regarding whether the IRS had made the process for filing for recognition of tax-exempt 501(c)(3) status too short and sweet.

The 1023-EZ was introduced several years ago as a means for smaller and fairly straight-foward organizations to apply for 501(c)(3) status without having to undertake the full Form 1023. The form’s use is limited to organizations with anticipated gross revenues of $50,000 or less, and assets of $250,000 or less. However, certain organizations, such as hospitals, schools, and supporting organizations, are not eligible to use the form regardless of their revenue and assets.

The 1023-EZ does not currently require a description of activities or financial information, and simply requires the applicant to attest to certain information (e.g., that the articles of incorporation contain the required purpose and dissolution language) and answer questions yes or no as to whether they will conduct certain activities (international, related-party transactions, etc.). There is an eligibility worksheet that is supposed to be filled out beforehand, but which is not submitted along with the electronic Form 1023-EZ.

Concerns were raised that the current structure makes it too easy for larger or ineligible organizations like schools to use the form (intentionally or not). One of the revisions, then, is to actually incorporate questions as to revenue, assets and foundation status (rather than just depending on the worksheet to weed out ineligible organizations). In addition, the form will incorporate a space for a short description of activities and purposes.

The IRS is anticipating that the changes will result in some increased reviewing time. It remains to be seen whether these changes will sufficiently address concerns, but they are a step in the right direction to a happy medium for smaller organizations that nonetheless need to comply with 501(c)(3) requirements on an ongoing basis.

Click here for more details from the Tax Exempt and Government Entities FY 2018 Work Plan.

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