Live From AICPA: IRS Readying Shorter Application Form

The Internal Revenue Service (IRS) plans to release a shorter version of its application for tax-exemption (Form 1023 EZ) within the next month and reduce the backlog of the longest applications by the end of the fiscal year.

Tamera L. Ripperda, director, exempt organizations, in the Tax Exempt Organizations Division of the IRS, provided the update during a session at the AICPA Not-For-Profit Industry Conference yesterday in Washington, D.C. (The conference hashtag is #AICPAnfp)

Based in the agency’s Cincinnati, Ohio offices, Ripperda oversees some 900 employees in the Exempt Organizations division. She was appointed earlier this year, replacing interim director Ken Corbin, who succeeded Lois Lerner.

The division consistently received more than 60,000 applications annually and that number has been edging toward 70,000 in the last two to three years, Ripperda said. “Clearly, we’re getting lot of incoming work coming in. For quite some time, we’ve been receiving more incoming applications than we’ve been able to close outgoing. That’s what’s led to the buildup of applications,” she said. About 80 percent of applications are for 501(c)(3) organizations.

There has been a continuing rise in applications received since 2010 while at the same time staffing continued to drop, though it has leveled off, Ripperda said. Staffing within the division approached 1,000 in 2009, but today is closer to 800.

A significant cause of the increase is likely from the auto-revocation provision within the Pension Protection Act (PPA) of 2006. Ripperda said about 550,000 organizations were auto-revoked and of those about 50,000 have come back for reinstatement.

“The provision did accomplish what it set out to do: Clear out those organizations that were on records but no longer in existence,” she said.

The agency is concentrating on the oldest cases and the goal is to have little or no “application inventory” older than 270 days at the end of the fiscal year, Ripperda said.

A shorter version of Form 1023, the application for tax-exemption, was released earlier this year, with a public comment period during the spring.

In comments submitted to the Office of Management and Budget (OMB), the National Council of Nonprofits raised concerns about the new Form 1023-EZ and the streamlined approval process of tax-exemption. Specifically, the organization believes the proposal would “decrease rather than improve the quality of information the IRS needs to make informed decisions, reduce public trust and inappropriately shift the IRS’ obligations onto others – foisting burdens on the public, existing charitable nonprofits, the funding community, and state charity regulators.”

You can see the full comments here.

“The thinking behind that was to get the minimal information that’s absolutely needed to determine whether to qualify for exempt status. That’s what the form is geared toward,” she said. “I believe we’ve structured something without increasing the risk level of an inappropriate determination being made.”

“We continue to look at the form and consider whether it’s ready for primetime,” Ripperda said, taking into account comments from the community and risk levels. The shorter 1023 EZ is about two-plus pages compared with the existing 26-page application.

“We recognize that this is the first shot at it, it may not be perfect the first time,” Ripperda said.