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IRS Releases New, Shorter Application

The Internal Revenue Service (IRS) unveiled a new, shorter application for small organizations seeking 501(c)(3) tax-exempt status in an effort to reduce paperwork for charities, speed up the application process and focus resources on large, more complex applications.

The new Form 1023-EZ is three-pages long compared. The standard Form 1023 runs 26 pages, and is now available on irs.gov. Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible. The IRS estimates that as many as 70 percent of all applicants will qualify to use the new form. Currently, the IRS has more than 60,000 501(c)(3) applications in its backlog, many pending for nine months.

“This is a common-sense approach that will help reduce lengthy processing delays for small tax-exempt groups and ultimately larger organizations as well,” IRS Commissioner John Koskinen said in an announcement, adding that the change will cut paperwork for charities and speed application processing.

“Previously, all of these groups went through the same lengthy application process — regardless of size,” Koskinen said. “This process created needlessly long delays for groups, which didn’t help groups, the taxpaying public, or the IRS,” he said.

The National Council of Nonprofits and the National Association of State Charity Officials (NASCO) were among those that submitted public comments on the proposal earlier this year. Both entities raised concerns that the new application could invite more malfeasance while the simplified process might increase the burden on “already overburdened” state and federal regulators. In response to feedback, the IRS revised the $50,000 gross receipts threshold from a proposed $200,000.

“We believe many small organizations will be able to complete this form without creating major compliance risks,” Koskinen said. “We believe the streamlined form will allow us to devote more compliance activity on the back end to ensure groups are actually doing the charitable work they apply to do,” he said.

The new EZ form must be filed online and instructions include an eligibility checklist that organizations must complete, along with a $400 user fee.