Today’s guidance and documents
To permit organizations to use the new application form and provide guidance regarding its availability, the IRS also released an advance copy of Rev. Proc. 2014-40 [PDF 102 KB].
Treasury and the IRS also released for publication in the Federal Register final and temporary regulations (T.D. 9674), and by cross-reference, proposed regulations (REG-110948-14) as guidelines for the streamlined process of applying for recognition of section 501(c)(3) status.
Read the final and temporary regulations [PDF 203 KB] and the proposed regulations [PDF 200 KB]
Form 1023-EZ [PDF 512 KB] Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code, is available on the IRS’s website but must be filed electronically on Pay.gov.
As compared to the 26-page Form 1023, Application for Recognition of Exemption under Section 501(c)(3), the Form 1023-EZ is barely three pages long, and the IRS anticipates that as many as 70% of all applicants will qualify to use the new streamlined form. The IRS expects that the new form will speed up the approval process for smaller groups and free up resources to review applications from larger, more complex organizations.
Form 1023-EZ eligibility
The instructions [PDF 464 KB] to the Form 1023-EZ are intended, in part, to provide organizations with an introduction to the requirements for exemption under section 501(c)(3). In addition, they contain a mandatory, seven-page, 26-question eligibility worksheet to assist an organization in determining whether it qualifies to apply using the streamlined application form, rather than the full Form 1023.
Section 2 of Rev. Proc. 2014-40 [PDF 102 KB] also sets forth the eligibility criteria.
In general, organizations eligible to file the Form 1023-EZ must:
- Have gross receipts of $50,000 or less and total assets of $250,000 or less
- Be a corporation, trust, or association (i.e., no LLCs)
- Be organized and operated in the United States (i.e., no foreign organizations, including those with foreign mailing addresses)
- Qualify as a section 501(c)(3) private non-operating foundation or publicly supported public charity under section 509(a)(1), section 170(b)(1)(A)(iv), section 509(a)(1)/170(b)(1)(A)(vi), or section 509(a)(2) (i.e., private operating foundations, churches, schools, hospitals, supporting organizations, and testing for public safety organizations may not use the form)
The “eligibility worksheet” and revenue procedure set forth a more comprehensive list of the requirements. Although an organization may be eligible to file Form 1023-EZ, it may choose to file Form 1023 instead.
Form 1023-EZ advantages
At just over two pages, the length of the Form 1023-EZ is one advantage over its 26-page sibling.
In trimming the application, the IRS removed the requirement to provide a narrative description of the organization’s activities (Form 1023, Part IV) and financial information (Form 1023, Part IX).
The list of officers, directors, trustees, and employees is limited to five individuals (in an order prescribed by the instructions), and the organization merely attests to and represents certain facts about its operations rather than providing long narrative explanations.
The current user fee for the Form 1023-EZ is $400 (as compared to $850 for the Form 1023). The Form 1023-EZ is filed electronically through the government’s Pay.gov website.
Form 1023-EZ limitations
The Form 1023-EZ does not come without its share of limitations. In addition to restricting the types of organizations that may apply using the Form 1023-EZ, the streamlined application also precludes the organization from attaching additional documentation.
Therefore, private foundations that want to obtain advance approval of their grant-making procedures under section 4945(g) and charities that may be excepted from their annual Form 990 filing requirement must separately seek such determinations using Form 8940, and paying the applicable user fee (currently $400).
Furthermore, expedited handling is not available for Form 1023-EZ applicants.
Form 1023-EZ for pending Forms 1023
Pursuant to Rev. Proc. 2014-40, Section 4.06, an organization eligible to file a Form 1023-EZ with a pending Form 1023 may submit a Form 1023-EZ if the Form 1023 has not yet been assigned for review. Such application will be treated as a written request for withdrawal of the Form 1023 (note that the user fee for the Form 1023-EZ must be submitted, and the Form 1023 user fee generally will not be refunded).
Furthermore, the date of submission of the Form 1023-EZ will replace the date of submission of the Form 1023.
For more information, contact:
Rick Speizman, Partner-in-Charge of KPMG's Washington National Tax Exempt Organizations Tax group
+1 (202) 533-3084