Form 1023-EZ: A Fast Track to 501(c)(3) Exempt Status

The IRS has recently introduced a streamlined and simplified version of Form 1023, used by charitable, religious, and educational organizations (among others) to apply for status as an exempt organization under section 501(c)(3), Form 1023-EZ. The new Form reduces the application from as much as 26 pages (excluding attachments) to just over two pages with no required attachments, and requests only cursory information about the organization’s structure, leadership, and operations.

The simplified Form is intended to relieve very small organizations of the burdensome requirement of completing the full Form 1023. In general, organizations which would be eligible to file the Form 990-N e-postcard are eligible to file Form 1023-EZ. Organizations whose gross receipts are not expected to exceed $50,000 per year for the following three years, whose total assets are less than $250,000, and which are not supporting organizations may qualify to file Form 1023-EZ. Certain types of organizations, however, such as churches, hospitals, schools, and charitable risk pools, may not use Form 1023-EZ.

The user fee required with an application for exemption may also be reduced. Filing Form 1023 requires a user fee of $850 be submitted for organizations with gross receipts expected to exceed $10,000 in any of the following four years. Form 1023-EZ carries a flat user fee of $400.

Similar to the Form 990-N e-postcard, Form 1023-EZ may only be filed electronically through a third party vendor, although frustratingly Form 1023-EZ and Form 990-N are hosted by different vendors. Form 1023-EZ is filed at pay.gov, while Form 990-N is filed at epostcard.form990.org.

One important difference between Form 1023-EZ and Form 1023 is that the simplified form requires the organization to certify unambiguously under penalty of perjury that the organization is organized exclusively for exempt purposes, does not substantially further nonexempt purposes and does not principally conduct an unrelated trade or business. Conversely, the full Form 1023 allows organizations that are unsure whether their organization meets these tests to present their argument with at-length narrative attachments and allow an IRS agent to make a determination. While this may appear to be a pedantic distinction, it appears to significantly shift the burden from the IRS to the organization. For Form 1023, the IRS must review the underlying documents and facts and assert that the organization does or does not meet the requirements; on Form 1023-EZ, the organization must assert that it does, without qualification or commentary. This may create significant problems for organizations with novel or ambiguous operational and organizational structures. These organization may be better off filing a full Form 1023.

On the positive side, organizations filing Form 1023-EZ appear to be getting their determination letters in as little as two weeks’ time, so there appears to be no need for an expedited request. Eligible organizations which were previously scared away by horror stories of months- and even years-long waits for determination can move forward confidently.

J. Calvin Marks
J. Calvin Marks | Manager