New Streamlined Process for Applying for Tax Exemption


By Debra Ries

Effective July 1, 2014, the Internal Revenue Service (IRS) released Revenue Procedure 2014-40, which sets forth the procedures used to apply for an issue determination letter under Section 501(c)(3) of the Internal Revenue Code using the new Form 1023-EZ, Streamlined Application for Recognition of Exemption.  The new shorter exemption application form is designed to assist small charities with the tax-exempt application process.

The new form, which is only three pages long, may only be used by small nonprofits with $250,000 or less in assets and annual (or projected annual) gross receipts of $50,000 for three years.  The IRS anticipates that Form 1023-EZ will speed up the approval process for smaller groups and free up resources to review applications from larger, more complex organizations, thus reducing the exempt application backlog.  Approximately 70% of all applicants will qualify to use the new form.

Form 1023-EZ must be completed and filed online.  An applicant organization must complete an eligibility checklist online before proceeding to the actual Form 1023-EZ.  A $400 user fee is due at the time the online form is electronically submitted.  Form 1023-EZ can be efiled and payment can be made at www.pay.gov.  The instructions to the new form and a copy of the revenue procedure can be found on the IRS website at www.irs.gov/charities.  The IRS will accept for processing a completed Form 1023-EZ from an eligible organization that has a Form 1023 pending with the IRS if the pending form has not yet been assigned for review.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

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