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IRS Moving Ahead with Form 1023-EZ

The IRS has announced it intends to move forward with plans to implement Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, during the summer of 2014.

Presently about 60 percent to 70 percent of all applications for exemption under code sec. 501(c)(3) are received from smaller organizations that will be eligible to use Form 1023-EZ. The proposed form is two and a half pages long, as compared to the 25-page Form 1023, which now must be completed by all organizations applying for tax-exempt charitable status. Along with the form the IRS intends to issue comprehensive instructions for filling out the form and for qualifying as a tax-exempt charity.

The IRS wants to streamline the application process because it wants to focus its resources on compliance. The EZ version of the application is designed to provide the IRS with sufficient information on the applicant’s organizational status so that the IRS will feel comfortable granting tax-exempt status. And for organizations that file Form 990-EZ or Form 990-N (short versions of the annual reporting form), the IRS expects there will be very little compliance risk in adopting this approach.

It is important to note, however, that the shortened application form would not be available to churches who might wish to file a formal exemption application with the IRS. When pressed to explain the exception, the IRS responded that churches are automatically considered exempt entities under the law and do not have to apply for tax-exempt status. Nevertheless, the IRS indicated they could reconsider this position at some point in the future.

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