July 15, 2014

IRS introduces new 501(c)(3) application process for certain prospective non-profits

On July 1, 2014, the Internal Revenue Service introduced a shortened application for organizations applying for 501(c)(3) status, known as the Form 1023-EZ, which is 3 pages long.  Those who have applied for 501(c)(3) status in the past or are familiar with the process know that the application (Form 1023) is upwards of 20 pages long, including schedules, and requires lengthy, complicated attachments.  It can take weeks or more to complete.  Furthermore, once submitted, Forms 1023 can now take up to 2 years to be approved by the IRS because of the backlog. This means an organization wishing to receive tax-deductible contributions may have to wait up to 2 years to find out whether its donors can deduct donations, which often translates to less funding.

With the addition of the shortened Form 1023-EZ (which only applies to organizations that have or project gross receipts of $50,000 or less and assets of $250,000; in addition, certain types of nonprofit organizations, such as those formed outside of the U.S., limited liability companies, successors to for-profit organizations, organizations whose 501(c)(3) status was previously revoked by the IRS, religious organizations, educational institutions, hospitals, supporting organizations, and HMOs are not eligible to use the form), 501(c)(3) applications can take much less time to complete, translating into fewer legal costs, and are expected to be approved in much less time than the standard form.  The filing fees are also less, at $400 vs. a potential $850 per application.  The new form still has pitfalls that can trap the unwary and result in denial of 501(c)(3) status, so the use of an experienced tax-exempt organizations attorney to complete the form is still advised.

To read more about the IRS’ announcement, please see the IRS new release.

If you or your organization are contemplating seeking 501(c)(3) status, please contact Goodwin Weber PLLC so that we can assist you with the process, as this is a core area of our practice.  We advise tax-exempt organizations / non-profits with regard to corporate formation and existence within the State of Maryland, the District of Columbia and New York.  We also assist non-profit organizations in obtaining tax-exempt status by the Internal Revenue Service, on a nationwide basis.  This includes 501(c)(3) charitable, religious and educational organizations, 501(c)(4) social welfare groups, 501(c)(6) trade associations, and other exempt organizations.   Our firm advises existing tax-exempt organizations to ensure ongoing compliance with the Internal Revenue Code, Treasury Regulations and IRS procedures and administrative decisions, and address any legal issues.  We also work with 501(c)(3) organizations to review their endowment funds, planned giving strategies, and address any corporate-related questions.