If you’re forming a small charity, you may be eligible to apply for tax-exempt status from the IRS using the new streamlined 1023 application that will be available in the summer of 2014. The IRS has released a draft of the new form, called Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.
When the IRS says streamlined, it means streamlined. The new form is only two pages long. The existing Form 1023 that all charities applying for tax-exempt status must use is 26 pages long. Unlike Form 1023, Form 1023-EZ don’t require any details about the charity’s organization, operations, or financing.
However, Form 1023-EZ is designed only for small charities. These are those with:
- annual gross receipts projected to be no more than $200,000 in any of the next three years, and
- total assets worth no more than $500,000.
Churches, hospitals, schools, colleges, foreign charities, credit counseling groups, nonprofits organized as LLCs, successors to for-profits and others can’t use the EZ form. Churches and charities with annual gross receipts up to $5,000 aren’t require to file with the IRS to be considered tax-exempt Section 501(c)(3) organizations. However, they often do so anyway so they will be listed as tax exempt on the IRS website and obtain an IRS determination letter they can show prospective donors to assure them their donations will be tax deductible.
The draft Form 1023-EZ instructions provide that if a charity files Form 1023-EZ within 27 months after the end of the month in which it was legally formed and the IRS approves the application, the legal date of the charity's formation will be the effective date of its exempt status. If a charity does not file Form 1023-EZ within 27 months of formation, the effective date of its exempt status will be the date it filed Form 1023-EZ with the IRS (the postmark date).
The IRS says the new form should be available for use by eligible charities by the summer of 2014.