On September 28, 2017, the IRS Tax Exempt and Government Entities division released its FY 2018 work plan. Of interest to nonprofits and their advisors, the IRS is planning to make changes to Form 1023-EZ early in 2018. These changes are in response to the concerns of stakeholders regarding whether the 1023-EZ process requires too little information.
Currently, the form is relatively simple and is processed in a matter of weeks at a reduced filing fee of only $275. It was introduced to permit a streamlined mechanism to process relatively routine applications for small organizations, thus clearing the backlog of long-form 1023 applications. While it has been successful in reducing the logjam of traditional 1023s, there are concerns that it requires too little information of filers.
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, some applicants, such as successors to for-profits, hospitals, schools, churches and supporting organizations, are not eligible to use the form.
Currently, Form 1023-EZ does not require governing documents to be attached. It does not require a description of activities or financial information. Instead, it relies on the applicant’s attestation that the articles of incorporation include the provisions necessary for exemption. For example, the Form requires applicants to attest that the articles of incorporation contain the essential tax-exempt purpose and dissolution language. The Form also asks applicants to indicate whether they will conduct certain activities (international, compensation of officers and directors, related-party transactions, etc.).
There are concerns that the current form invites errors because it requests so little information of applicants. Proposals include requiring applicants to provide financial information, information regarding foundation status, and a brief description of activities and purposes. The intent is that requiring additional information will help weed out organizations that are not qualified to file 1023-EZ such as churches and schools and those that don’t meet the income and asset limits.
It remains to be seen whether these changes will sufficiently address stakeholder concerns, but they should lead to a more balanced approach to 501(c)(3) applications for smaller organizations.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations. Ellis is licensed to practice in Washington and Arizona and advises nonprofits on federal tax and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.