Organizations that are organized and operated exclusively for charitable, religious, scientific and/or educational purposes must file either a Form 1023 or Form 1023-EZ to obtain recognition of exemption from federal income tax under section 501 (C)(3). The Form 1023 or 1023-EZ must be filed within 27 months of formation to avoid being taxed as a for-profit corporation. Once approved, the exempt status is retroactive to the date of formation.
As of January 31, 2020, the IRS requires an entity seeking to become tax exempt to file Form 1023, Application for Recognition of Exception Under Section 501(C)(3) of the Internal Revenue Code, to complete and file electronically through Pay.gov. A streamlined version, Form 1023-EZ, is also available for smaller organizations to complete and file electronically through Pay.gov as well. Paper forms postmarked after May 1, 2020 will no longer be accepted by the IRS. Approval of the paper Form 1023 could take up to six months to receive approval so the expectation is that filing online will speed up the approval process.
Any organization can file Form 1023. Form 1023 is a 26-page application that obviously is quite detailed. The Form 1023-EZ is a three-page application and is available for smaller organizations that meet certain criteria. Listed below are a few of the common eligibility indicators:
- Gross receipts did not exceed $50,000 in any of the past 3 years
- Gross receipts are not projected to exceed $50,000 in the next 3 years
- The fair market value of the organization’s total assets does not exceed $250,000.
- The organization must be formed as a non-profit entity and is not a church, educational institution, hospital, or agricultural research organization
An eligibility worksheet can be found at https://www.irs.gov/pub/irs-pdf/i1023ez.pdf with the full list of criteria for organizations that may be eligible to file Form 1023-EZ. For more information, and the applications and instructions, visit the IRS website at https://www.irs.gov/forms-pubs/about-form-1023.
Feel free to contact your Henry+Horne nonprofit adviser with any questions.