Form 1023-EZ: a Single Scoop of Vanilla

On July 1, 2014, the IRS released new Form 1023-EZ which some small charities can use to apply for exemption instead of the backlogged Form 1023. Overall, Form 1023-EZ would save a lot of time and work in preparing the exemption application.  In theory, the IRS should process Form 1023-EZ faster than it has recently been handling Form 1023.

To be eligible for Form 1023-EZ, the new charity must represent that its projected gross revenues will not exceed $50,000 annually in its first three years.  It must likewise represent that its assets do not exceed $250,000.

Some categories of charity, like churches, schools, hospitals, and credit counseling organizations, are entirely excluded.  The instructions contain an Eligibility Worksheet of 26 questions.  Answering “Yes” to any question means that the charity is ineligible for Form 1023-EZ.

No mission statement or narrative description is required.  The charity merely selects a code from several hundred choices in the National Taxonomy of Exempt Entities (“NTEE”).  For instance, B92 is the NTEE code for Remedial Reading and Encouragement.   Of course, not all NTEE codes correspond to charities.  Code J40 is for Labor Unions, which fall under IRC Section 501(c)(5);  code S41 is for Chambers of Commerce, under IRC Section 501(c)(6).

No financial projections are required, beyond the representations about gross revenues and assets.

There are eight yes-or-no questions about areas of IRS concern.  Answering “Yes” does not disqualify the applicant.  But the more “Yes” answers, the higher the likelihood of follow-up questions.

These questions include:

  • Do you or will you attempt to influence legislation?
  • Do you or will you pay compensation to any of your officers, directors, or trustees?
  • Do you or will you donate funds to or pay expenses for individuals?
  • Do you or will you engage in financial transactions with any of your officers, directors, or trustees (or with their controlled entities)?
  • Do you or will you provide disaster relief?

Additional posts will explore specific issues raised by Form 1023-EZ.

Overall, a new charity that is “vanilla” in nature, with no special flavors or toppings, should sail through using Form 1023-EZ, though only a single scoop will fit under the financial thresholds.

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