OUR THOUGHTS ON:

IRS to Revise Form 1023-EZ, Streamlined Application for Recognition of Exemption

Not-for-Profit|Tax

By Melanie Pantalone

On July 1, 2014, the Internal Revenue Service (IRS) introduced the highly scrutinized Form 1023-EZ, Streamline Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code (IRC).  The purpose of this form was to shorten the application for small 501(c)(3) tax-exempt charities.  Most organizations with gross receipts of $50,000 or less for the first three years and assets of $250,000 or less are eligible to use the Form 1023-EZ when filing for exemption with the IRS.  Private foundations are not eligible to use Form 1023-EZ. 

Many practitioners in the field of exempt organizations feel strongly that the Form 1023-EZ does not thoroughly vet new applicants requesting tax-exempt status.  The Form 1023-EZ is three pages in length, compared to the 26-page Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the IRC. 

The IRS is currently using data-mining techniques on exempt organization returns in order to find discrepancies to determine if an audit should be initiated.  The IRS wants to apply these data analysis techniques to the Form 1023-EZ application.  The IRS will be adding a question about the applicant's gross receipts and fair market value of the organization's assets.  A narrative box will also be added for the applicant to state the organization's mission and primary activities.  The revised form will also require churches, schools and hospitals to self-identify.  These entities are not eligible to file Form 1023-EZ. 

The IRS has determined that statistical data will help its agents gather the information they need when reviewing applications from charitable organizations.  The queries that will be run on the data will pick out obvious noncompliant applications and automatically deny the exemption.

For more information or questions regarding the Form 1023-EZ, please contact Schneider Downs.

 

 

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