Changes Expected in Early 2018 for Applications of Exempt Organizations

Health Care|Higher Education|Internal Revenue Service|Not-for-Profit|Tax

By Melanie Pantalone

Sunita Lough, commissioner of the Internal Revenue Service (IRS) Tax-Exempt and Government Entities (TE/GE) Division stated recently that changes will be made in January to Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, and Form 1024, Application for Recognition of Exemption Under Section 501(a) with the goal to streamline the application process surrounding both forms.

On September 27, the IRS released a draft version of Form 1024-A, Application for Recognition of Exemption under Section 501(c)(4) of the Internal Revenue Code, created specifically for organizations applying to be social welfare organizations under the section. The comment period ended October 23. Lough stated the new application form will be made available in January but did not mention if the comment period produced any revisions to the draft application.

The highly scrutinized Form 1023-EZ, Streamline Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code will also have changes in January, according to Lough. The IRS will add questions about the applicant's gross receipts and fair market value of the organization's assets, along with a narrative box for the applicant to state the organization's mission and primary activities. The revised form will also require churches, schools and hospitals – entities not eligible to file Form 1023-EZ – to self-identify.

These changes were outlined in the TE/GE's Fiscal 2018 Work Plan, released in September, and the Division predicts the average processing time for the forms will increase. According to Lough, additional examiners have been hired for the extra workload.

Lastly, the Division has put added emphasis on compliance with regard to paper-filed returns. In January, the Division will implement procedures intended to detect and reject incomplete paper-filed returns that were previously filed with the IRS. Lough notes, "Paper returns get away with not giving us all the data, and that's not very equitable; we want that to change."

With limited funding and personnel resources, the TE/GE Division strives to have maximum efficiencies wherever possible, not only through the exempt organization application process but also through audit processes. The Division’s goal is to continue to evolve and develop better and faster practices.

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