Posted by Christina Bell, CPA
In June 2014 I wrote a blog entitled Applying for Tax Exemption Just Got “EZ”er which described the IRS’s implementation of Form 1023-EZ. Form 1023-EZ allows certain qualifying organizations to apply for tax exempt status using an application form that is extremely less complex than the original Form 1023.
During December 2015, the IRS issued “Form 1023-EZ First Year Report” which reported the results of a customer satisfaction survey from organizations that had been through the process during the six months ended March 31, 2015. In addition, the IRS reported the results of its own monitoring during the first year of the form’s availability. A few of the results listed in the report are as follows:
- During the first year of Form 1023-EZ’s availability (July 1, 2014, through June 26, 2015), 52% of applications for tax-exempt status were filed on Form 1023-EZ. This equated to 43,157 Form 1023-EZ filings.
- The average processing time for Form 1023-EZ is 13 days, compared with an average of 191 days for Form 1023.
- 77% of Form 1023-EZ applications were approved.
- The two biggest reasons for rejection were: failure to meet the retroactive reinstatement requirements (i.e., the Form 1023-EZ submission date was more than 15 months after the IRS posted the organization’s name on its EO Select Check list) and invalid employer identification numbers (EINs). Less than 5% of applicants were rejected because their gross receipts (or projected gross receipts) exceeded $50,000 or because their total assets exceeded $250,000.
- Overall satisfaction was 87% for Form 1023-EZ applicants and 72% for Form 1023 applicants.
So what do these results mean? For one, the IRS has indicated changes to the form. These planned changes include:
- Requiring the identification of a contact person for additional information requests.
- Requiring the applicant to attest that gross receipts or expected gross receipts are less than $50,000.
- Requiring the applicant to obtain an independent attestation that the organization’s total assets are less than $250,000.
- Making revisions to the form and its instructions to clarify the application requirements so that fewer ineligible organizations use Form 1023-EZ to apply for tax exempt status.
In addition to the above changes, the IRS initiated a post-determination compliance program for Form 1023-EZ filers in 2016. This program consists of correspondence examinations of a random sampling of Form 990 series information returns or notices filed by organizations that received exempt status through Form 1023-EZ. The purpose of these examinations is to assess the level of compliance by the organization with tax exemption tax law and to use the findings to identify further opportunities to improve Form 1023-EZ.