501(c)(3) organizations are public charities. Donations to the organizations are tax deductible . Public charities can accept grants from private foundations.
In August 2014, the IRS greatly simplified the application process to become a tax exempt organization for small groups. The new application form is called 1023-EZ. The new rules allow groups with annual gross receipts of $200,000 or less, and assets of $500,000 or less, to complete and file the new form. The old form 1023 must still be used by organizations that do not meet this criteria.
The 1023-EZ is a two page form which is in contrast to the standard 26-page 1023 tax exempt application. The old form requires detailed financial information including financial projections. The new 1023-EZ does not require any financial information. The old form requires a detailed description of the organization’s charitable activities. In contrast, the new 1023-EZ asks only whether the organization meets 501(c)(3) criteria. No detailed description is required.
Applications that are complete and meet the 501(c)(3) rules will be automatically approved by the IRS within a week after filing. Prior to the changes, it could take up to a year to have a 1023 tax exempt application approved.
The filing fee for 1023-EZ applications is $400.
In order to complete the 1023-EZ application, the organization needs to provide the IRS with the following information:
- Basic information like name, address, telephone number, and employer identification number;
- The names, titles and mailing addresses of the officers, directors and/or trustees of the organization;
- Date of incorporation and corporate status;
- Representation that the organization limits its purposes to an exempt purpose within section 501(c)(3);
- Representation that any organizing document does not expressly empower the organization to engage in activities that are not in furtherance of a tax exempt purpose;
- Representation that the organizing documents state that upon dissolution the remaining assets of the organization will be used exclusively for tax exempt purposes ;
- Representation that the organization will not be involved in political campaigns or attempts to influence legislation;
- Representation that the organization’s net earnings will not inure to the benefit of private shareholders or individuals, and similar representations; and
- That the organization does not qualify as a private foundation.
The new 1023-EZ tax exempt application is an amazing improvement over the existing application process. It should result in a significant increase in the number of organizations applying for 501(c)(3) tax exempt status.