We all know the process of forming a non-profit is difficult, right? And we all know that the waiting period for approval of tax-exempt status is a long one (6-12 months). Well, it appears the IRS has listened to our cries for help!
Introducing: IRS Form 1023-EZ (“EZ”). The IRS released the EZ form to reduce current backlog and shorten the turnaround time for 501(c)(3) registration. The form merely consists of a two-and-a-half-page checklist requiring the applicant to check various boxes and certify that he or she will comply with the rules governing 501(c)(3) organizations. It requires no additional documents, unlike the long Form 1023 (“Long Form”), which typically runs upwards of 50 pages when completed. However, unlike the Long Form, the EZ must be electronically filed.
Great! But, do you qualify for the EZ? Most small organizations qualify to use the new form. In fact, the IRS estimates up to 70% of applicants will be able to utilize this streamlined route to non-profit status. In order to qualify, the organization must project gross receipts of $50,000 or less for the filing year as well as the next two years, and its assets may not exceed $250,000. The organization is expected to make a good faith estimate in regard to these numbers.
Lastly, in addition to the EZ being significantly shorter than the Long Form, there are a few advantages to using the EZ. First, the turnaround time for EZ applications is expected to be around 1-2 months, but applicants have reported turnaround times as short as 2-3 weeks. Second, the Long Form carries a filing fee of $850, whereas the EZ carries a fee of only $400. Third, the IRS approximates that the Long Form 1023 will take the average person 100 hours to complete, while it is estimated to take only 8-9 hours to complete the two-and-a-half-page EZ.
Now, there are disadvantages to using the EZ that should be carefully considered before choosing this option. Restrictions on the amount of annual revenue and potential denial of grants due to not utilizing the Long Form are among the potential pitfalls to the EZ, so it is very important to discuss your options with an experienced attorney or non-profit specialist.
This is a huge step in the right direction by the IRS and we encourage anyone contemplating the formation of a non-profit to include this in his or her list of options! Good luck!
- Nonprofit FAQs – Getting to Tax Exemption
- Are You a Private Foundation or Public Charity?
- Nonprofit Board of Directors FAQs
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Photo Credit: Ashley Gutierrez