IRS Releases Short Form Exemption Application – Form 1023-EZ

July 11, 2014 Posted by Jessica Shofler in IRS, News, Nonprofits

The IRS has forged ahead in the face of opposition from charity regulators and several nonprofit associations and introduced a short form exemption “application.” To be eligible to use the form, an organization must be able to answer “No” to each of 26 yes or no questions, including the following 3:

  1. Do you project that your annual gross receipts will exceed $50,000 in any of the next 3 years?
  2. Have your annual gross receipts exceeded $50,000 in any of the past 3 years?
  3. Do you have total assets in excess of $250,000?

The new form, known as Form 1023-EZ, is 3 pages long compared to the 12 pages plus schedules of the standard Form 1023. The IRS estimates that about 70% of new applicants will be eligible to file the short form. Exemptions will be all-but automatic for organizations that use the short form and answer no to all 26 questions.

By reducing the time it spends reviewing exemption applications, the IRS plans to dedicate more resources to rooting out fraud and abuse among existing nonprofits. However, the lack of scrutiny of organizations filing Form 1023-EZ may incentivize applicants to underestimate their projected revenue in order to use it instead of the full form. In addition, without the scrutiny of the full Form 1023, the IRS has opened the door to abusive and fraudulent use of Form 1023-EZ by organizations that have no charitable intent. This will inevitably lead to an unprecedented number of exemption applications, which the Service will likely have extreme difficulty effectively monitoring and auditing.

What do you think of the new short form?

NOTE: The information contained herein is not intended to be legal advice and the reader should know that no Attorney-Client relationship or privilege is formed by the posting or reading of this article which is also not intended to solicit business.

Casey Summar, Partner, The Law Firm for Non-Profits, 4705 Laurel Canyon Blvd, #306, Studio City, CA 91607

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