Tax Tip of the Week | No. 318 | Filing for Tax-Exempt Status Now Much Easier

Tax Tip of the Week | September 2, 2015 | No. 318 | Filing for Tax-Exempt Status Now Much EasierIRS now offers Form 1023-EZ

For decades, the IRS used the same application, Form 1023, for all nonprofits seeking Section 501 (c)(3) tax-exempt status. Although, the IRS had a lower application fee ($400 instead of $800) for small nonprofits with annual gross income of less than $10,000, there wasn’t a simpler application process for the small organizations. Form 1023 is a complex, 26-page form to submit that takes many hours to fully complete.  This also led to a backlog of over a year for the IRS to approve the applications.In July, 2014 the IRS introduced Form 1023-EZ. This is a simple 2 ½ page form that the IRS estimates about 70% of all applicants will be eligible to submit.  To be eligible to use this application process, the organization must project to have less than $50,000 in gross revenues and assets of less than $250,000. There is also about 20 additional types of organizations ineligible to use the EZ form.  This would include LLCs, churches, schools, colleges, hospitals and HMOs to name a few.Since introducing Form 1023-EZ, the IRS reported they had closed 117,000 exemption applications in 2014, a 121% increase from the prior year. In addition, the approval process is now being completed in as few as ten days.The form, however, has many critics.  Information such as financial statements and Articles of Incorporation are not required with the 1023-EZ. The concern is that unqualified or poorly organized organizations may be granted tax-exempt status.  To answer the critics, the IRS has announced they will conduct examination audits of the organization one year after the 501(c)(3) status is granted.Give us a call if you have an interest in starting a tax-exempt organization.You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.Rick Prewitt – the guy behind TTW...until next week.