Form 1023 is a United StatesIRS tax form, also known as the Application for Recognition of Exemption Under 501 of the Internal Revenue Code. It is filed by nonprofits to get exemption status.
Eligibility
The following organizations are eligible to file Form 1023 under section 501 of the Internal Revenue Code:
Religious or charitable organizations
Scientific organizations and organizations that test for public safety
However, the IRS allows certain groups to be automatically exempt from filing Form 1023, yet still eligible to be classified as a 501 organization:
Churches, their integrated auxiliaries, and conventions or associations of churches
Organizations that are not private foundations and that have gross receipts that normally are not more than $5,000
Furthermore, to qualify for tax-exempt status, the organization must be:
Organized as a corporation, LLC, trust, or unincorporated association with organization documents limiting the organization's reach permanently to the purpose it's filing the form for.
Operated to further the purposes laid out in its organization documents, and:
* Refrain from participating in political campaigns or promoting legislative activity
* Ensure that its assets and earnings don't unjustly benefit board members, officers, or other key members of the organization
* Refrain from promoting private or non-tax-exempt purposes more than insubstantially
Applications cost $400 if the charity has earned less than $10,000 annually for the past four years, and $600 if over that amount.
Form 1023-EZ
Form 1023-EZ is a streamlined version of Form 1023; it was introduced in 2014 because the original Form 1023 can take over nine hours to complete, and many organizations were waiting over a year for review. About 52% of all organizations filed Form 1023-EZ, with an average turnaround time of 9 days. Of the organizations submitted, 95% of them were approved for charity status.
Requirements
Organizations applying for tax-exempt status through Form 1023-EZ can apply online at Pay.gov if they meet the following requirements:
Gross receipts in each of the past three years and projected next three years are below $50,000
The organization is not a successor to, or controlled by, an entity suspended as a terrorist organization as defined by section 501
Are organized as a corporation, unincorporated association, or trust
Not a successor of a for-profit entity
Not a revoked or previously revoked organization
Not a church, church association, school, college, university, hospital, medical research organization, HMO, ACO or organization participating in ACO activities, organized and operated exclusively for public safety testing,
Are not applying for an exemption as a cooperative hospital service organization, cooperative service organization of operating educational organizations or qualified charitable risk pool
Are not requesting application as a supporting organization or private operating foundation
Do not offer credit counseling as the main service, invest more than 5% of assets in non-public trading, or offer carbon credits or carbon offsets
Do not maintain or intend to maintain one or more donor-advised funds
Organizations that do not fall under these requirements may still file the original Form 1023.
History
Form 1023-EZ was created when the National Taxpayer Advocate suggested simplifying the form in 2011, and the IRS eventually followed that advice in 2013. The form was finally introduced in July 2014. While the majority of charities will file through Form 1023-EZ, the move to simplify it wasn't without its criticisms. As Form 1023-EZ doesn't require a list of charity activities or supporting documentation, those activities will go unknown to the IRS, and there is no protection against uncharitable organizations filing the form for tax exemption status. In the 2015 Annual Report, the IRS reported an audit on Form 1023-EZ revealing that 2 in 5 charities that filed Form 1023-EZ would not qualify for charity status if they had gone through the full Form 1023. Furthermore, in 2016, the application fee for Form 1023-EZ had been reduced from $400 to $275.
