IRS issues new streamlined Form 1023 EZ
Generally, a section 501(c)(3) organization must file a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, with the IRS in order to be recognized as a charitable organization qualified to receive tax-deductible contributions from the general public.
Any organization may file a Form 1023 to apply for recognition of exemption from federal income tax under section 501(c)(3). Certain organizations are now eligible to file the new Form 1023-EZ, a streamlined version of Form 1023. However, the following types of organizations may be considered tax-exempt under section 501(c)(3) even if they do not file Form 1023 or Form 1023-EZ:
- Churches, including synagogues, temples and mosques
- Integrated auxiliaries of churches and conventions or associations of churches
- Any organization that has gross receipts in each tax year of normally not more than $5,000
Which organizations can file a new Form 1023-EZ?
Only certain organizations are eligible to apply for exemption under section 501 (c)(3) using Form 1023-EZ. To determine eligibility, an organization must complete the Form 1023-EZ Eligibility Worksheet.
If an organization meets the eligibility requirements, it must check the box at the top of Form 1023-EZ to attest that it is eligible to file the form. By checking the box, the organization is also attesting that it has read and understands the requirements to be exempt under section 501(c)(3). The organization is not required to submit the eligibility worksheet with the submitted application. However, the IRS recommends that an organization retains the worksheet for its records.
If an applicant answers "Yes" to any of the worksheet questions, it is not eligible to apply for exemption under section 501(c)(3) using Form 1023-EZ. Instead, the full Form 1023 must be filed. If the organization answers "No" to all the worksheet questions, it may apply using Form 1023-EZ. The following types of organizations are not eligible to file Form 1023-EZ:
- Have annual gross receipts in excess of $50,000 in any of the three years subsequent to filing the application
- Have annual gross receipts that exceeded $50,000 in any of the three years prior to filing the application
- Have total assets in excess of $250,000
- Were formed under the laws of a foreign country (U.S. territories and possessions are not considered foreign countries)
- Have a mailing address in a foreign country (U.S. territories and possessions are not considered foreign countries)
- Are a successor to, or controlled by, an entity suspended under section 501(p) (suspension of tax-exempt status of terrorist organizations)
- Formed as a limited liability company (LLC)
- A successor to a for-profit entity
- Was an organization where exempt status was previously revoked (except due to a failure to file Form 990 series returns for three consecutive years)
- A church or a convention or association of churches
- A school, college or university
- A hospital or medical research organization
- A cooperative hospital service organization
- A cooperative service organization of operating educational organizations
- A qualified charitable risk pool
- A supporting organization under section 509(a)(3)
- A credit counseling activities organization
- Invests 5 percent or more of its assets in securities or funds that are not publicly traded
- Involved in partnerships where other partners that are not section 501(c)(3) organizations
- Sells or intends to sell carbon credits or carbon offsets
- A health maintenance organization (HMO)
- An accountable care organization (ACO)
- Maintains one or more donor-advised funds
- A public safety organization under section 509(a)(4)
- A private operating foundation
- Had exemption revoked for failure to file Form 990 series for three consecutive years
When to file (effective date of exemption)
Generally, an organization may file Form 1023-EZ within 27 months after the end of the month in which it was legally formed. If the IRS approves the application, the legal date of formation will be the effective date of the organization's tax- exempt status. If an organization does not file Form 1023-EZ within 27 months of formation, the effective date of the organization's exempt status will be the date it filed Form 1023-EZ (submission date).
If an organization does not file Form 1023-EZ within 27 months of formation but believes it qualifies for an earlier effective date than the submission date, it can request the earlier date by sending correspondence to the IRS. The correspondence should include the organization's name, employer identification number (EIN), the date that the organization is requesting as the effective date, and an explanation of why the earlier date is warranted, with any supporting documents. This correspondence should be sent after the organization has received its determination letter from the IRS.
Annual filing requirements
Generally, an organization that qualifies for exemption under section 501(c)(3) is required to file an annual return in accordance with section 6033(a). However, an eligible organization, other than a private foundation, that normally has annual gross receipts of less than $50,000 is not required to file an annual return, but must furnish electronic notice on Form 990-N to provide the information required by section 6033(i) as provided in Rev. Proc. 2011-15 (2011-3 I.R.B. 322).
An organization that is required to file a Form 990 series annual information return or submit an annual electronic notice (Form 990-N) must do so even if its application for recognition of exemption has not been filed or has been filed but not yet approved.
If an annual information return or tax return is due while the Form 1023-EZ is pending, the return should be completed, and the organization should check the "Application pending" box in the heading and send the return to the address indicated in the instructions.
If an annual electronic notice, Form 990-N, is due while the Form 1023-EZ is pending, the organization may need to contact the IRS at 877.829.5500 and ask for an account to be established for the organization so that it may file the notice.
Any organization adding a new affiliated entity to its existing structure or forming a new entity intended to be tax-exempt under section 501(c)(3) should take note of this new streamlined filing requirement. Organizations should consult their tax advisors on any outstanding questions regarding qualifications for this streamlined reporting.