The 501 S(c)ene

The latest view on not-for-profit accounting issues

Form 1023-EZ now available electronically

It is official! The Internal Revenue Service (“IRS”) just announced that Form 1023-EZ, Streamlined Application for Recognition of Exemption, is now available online for the public to see for the first time.

“The new online availability of Form 1023-EZ data is an important step forward and will allow taxpayers to more easily research information on tax exempt organizations,” John Koskinen, IRS Commissioner.

The data is available on the IRS website and is presented on a spreadsheet. It includes information for approved applications beginning when the Form 1023-EZ was first introduced, July 1, 2014, through December 31, 2016. Going forward, the spreadsheet will continue to be updated on a quarterly basis as part of the IRS’s continued effort to provide timely information to the public about the tax-exempt community.

Need a refresher on what is included on Form 1023-EZ? Well, I did too. It includes basic identifying information about your organization, such as (but not limited to):

  1. Name of your organization
  2. Employer Identification Number
  3. A list of the names of all officers, directors and trustees
  4. Organizing documents
  5. State of Incorporation
  6. Exempt purpose and activities of the organization

Why is this a big deal?

Form 1023-EZ, audit, accounting, CPA, nonprofitRecent studies have indicated that several approved organizations have not met the organizational test to be determined as tax-exempt. The organizational test requires that an organization has acceptable purpose and dissolution clauses in their organizing documents. In 2015, the Taxpayer Advocate Service determined that 26% of all approved organizations did not meet the organizational test.

So, how are these organizations approved by IRS if they do not pass the organizational test?

The IRS agrees there are some shortcomings in the Form 1023-EZ since the narrative description of activities, articles of incorporation and bylines are not required to be submitted with the Form 1023. As long as the organization states they meet the purposes test and have a dissolution clause, the IRS will generally approve exempt status due to the considerable burden it would cause the IRS to review every organization’s bylaws and articles of incorporation. The IRS hopes that providing the Form 1023-EZ online will deter organizations from submitting the Form without first double checking that they meet the requirements to be considered tax-exempt – especially now that the public can readily access their information.

Kristian Haralson