Not-for-profit organizations who wanted to be IRS-exempt have long been faced with completing Form 1023. This form is an arduous 26 pages long and the IRS estimates are that it would take as long as 16 hours just to complete the form after spending up to 7 hours learning about the form. Time spent in record keeping is estimated to be up to 100 hours. Obviously, this is not a task for the faint of heart and is a major hurdle to an organization wishing to become tax exempt. In addition, the IRS spends an inordinate amount of time processing these forms and has a backlog of 60,000 applications, which is about a nine-month backlog. Currently, the IRS states that it takes up to 21 days just to acknowledge the application.
This step is necessary for an organization to be qualified as a 501(c)(3) not-for-profit organization that may accept charitable contributions from taxpayers. Without this approval, contributions to the organization are not tax-deductible by the donor.
It did not matter if the organization was a large, multimillion dollar charity or a local high school booster club – all were subject to completing the same form.
Good News! As of July 1, 2014, the IRS is now accepting Form 1023-EZ which is a three-page form. There is a seven-page eligibility worksheet that must be completed before you can complete the 1023-EZ, but is consists of relatively simple questions that must be answered. IRS estimates are about five and one-half hours to complete this form and two and one-half hours learning about the form. Record keeping is “only” ten hours.
Generally an organization that has gross receipts of $50,000 or less and assets of $250,000 are eligible to complete the new, simplified form. The IRS states that they anticipate faster processing for the returns that will free up IRS resources for more productive activities (audits, maybe?).
The 1023-EZ may be completed online only. There is a user fee of $400 that must be paid online when the application is submitted. This is done through pay.gov.
A copy of the form, along with the instructions are available at www.irs.gov. The form may be completed and submitted at http://www.irs.gov/uac/About-Form-1023EZ.
In accordance with Circular 230 Disclosure
Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.
Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.
He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.
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