If you’re forming a small charity, you may be eligible to apply for tax-exempt status from the IRS using Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. It is a streamlined application form for smaller nonprofits and it's available on the IRS website.
When the IRS says streamlined, it means streamlined. The form is only three pages long. The regular Form 1023 application that all charities applying for tax-exempt status must use if they aren't eligible to use the Form 1023-EZ is 26 pages long. Unlike Form 1023, the Form 1023-EZ doesn't require 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 $50,000 in any of the next three years, and
- total assets worth no more than $250,000.
Certain specified organizations such as 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. The IRS estimates that up to 70% of new charities will be able to use Form 1023-EZ. The instructions to the Form include an Eligibility Worksheet that must be completed in order to determine whether or not the charity is eligible to use the shorter streamlined Form 1023-EZ.
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 Form 1023-EZ must be filed online and there is a $400 application fee.