Moving EO Forward


By Susan Kirsch

PRIMARY CONTACT: Susan Kirsch CPA, JD (Pittsburgh)

The newly appointed IRS Exempt Organization Management Team has moved forward swiftly and boldly with the release of its Streamlined Application for Recognition of Exemption under Section 501(c)(3) – Form 1023-EZ in draft form.

The form’s simplicity will alleviate the IRS’s need to “fact check” narrative representations prior to recognizing an organization’s exempt status. Nonprofit applicants will be required to work through an eligibility worksheet and if eligible to file, attest to their “commitment” to adhere to federal tax law.  Form 1023-EZ filers will not be required to submit organizing documents, narratives of proposed activities or proposed budgets.  The streamlined process is designed to reduce the staggering backlog of exempt applications at the IRS and refocus review efforts away from proposed activities to operational activities – which is “code” for more audits.

Eligible applicants would include those with projected revenue of less than $300,000 during the first three years of operation and assets of less than $500,000.  The form’s release is expected this summer. The IRS has committed to substantially reduce its backlog by September 30, 2014 anticipating that 90% of all pending applications will be addressed on a “first in, first out” basis.  Recognizing that there may be organizations that failed to file the required annual information returns for three consecutive years while their applications for exempt status were pending, the IRS has instructed its employees that the Form 1023 will be treated as a request for reinstatement. 

The IRS is to be commended for its practical approach and commitment to a risk-based approach to business operations.  It remains to be seen whether the Form 990-EZ will be modified to address filers’ ongoing compliance with federal tax law.

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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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