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501(c)(3) Applications Made EZ

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August 08, 2017

501(c)(3) Applications Made EZ


There are many federal and state tax benefits to a nonprofit organization obtaining 501(c)(3) charitable recognition from the IRS, not least of which is the ability to offer donors tax deductibility on their donations.  For many years, however, regardless of whether your organization was big or small, the process of obtaining 501(c)(3) recognition through the IRS was a time-consuming and arduous one, as the traditional Form 1023 application — the IRS application for obtaining 501(c)(3) recognition — amounted to some 26 pages of questions and requests for information, not counting additional pages that the applying organization would need for providing required narrative responses.

In 2014, however, the IRS changed its process by allowing smaller organizations the option to apply for 501(c)(3) recognition using the new Form 1023-EZ application — a version of the traditional Form 1023 application streamlined into an online form just three pages long.  The new Form 1023-EZ is not only significantly simpler for the applying organization to complete, it is significantly simpler for the IRS to review, which means quicker turnaround time for obtaining IRS approval.

As stated in 2014 by then IRS Commissioner John Koskinen, “[p]reviously, all of these groups went through the same lengthy application process — regardless of size.  It didn’t matter if you were a small soccer or gardening club or a major research organization. This process created needlessly long delays for groups, which didn’t help the groups, the taxpaying public or the IRS.”

The IRS requires applying organizations to complete a short questionnaire to first determine whether the organization may apply using the 1023-EZ, but the monetary thresholds for an organization to qualify are as follows:

  • Projected annual gross receipts must not exceed $50,000 in any of the next 3 years;
  • Actual annual gross receipts must not have exceeded $50,000 in any of the past 3 years; and
  • Total assets must not exceed $250,000.

Even if your organization falls under the financial threshold to proceed using the Form 1023-EZ, your organization must, of course, still meet the standard for “charitable” as defined by the IRS and be in compliance with other organizational matters.  The simplified process, however, puts 501(c)(3) status on the table as a realistic option for small charitable organizations, whereas before it may have felt like an impractical and cost-prohibitive pursuit.

The benefits of 501(c)(3) recognition are numerous at both the federal and state level. Whether you are contemplating the formation of a new organization or if you already have an organization and previously determined the pursuit of 501(c)(3) recognition was not worth the effort, the new streamlined process offered by the IRS to small organizations is something worth considering.

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