Government, Law, and Nonprofits

IRS offers shortcut to tax-exempt status

August 1, 2014
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Founding a nonprofit often is based on a vision of helping make the world a happier, healthier, better place — but the process can be a nightmare.

The three-part process involves forming the nonprofit corporation, seeking tax-exempt status and registering for a charitable solicitation registration.

Up until recently, the second step — seeking tax-exempt status with the IRS — has involved a 26-page form with numerous attachments, up to $850 in fees, and a wait of anywhere from nine months to two years.

It’s been enough to make some burgeoning nonprofits reconsider.

“It’s kind of burdensome for a brand new organization just getting started,” said Thomas Flickinger, a Rhoades McKee attorney.

Flickinger noted the IRS is currently reviewing applications that were filed in October 2013.

But recently, the IRS introduced 1023-EZ, a three-page tax-exempt status request form.

“The goal here is shortening the application and making it pretty easy for a small nonprofit to get its tax-exempt status, and allowing the IRS to focus more on larger organizations or organizations with goofy circumstances,” Flickinger said.

“The IRS has estimated that 70 percent of all new charities will be able to use this form.”

Nonprofits have to meet 26 qualifiers to use the new form. Of those qualifiers, Flickinger said the main two involve assets and gross receipts.

“You can’t have more than $250,000 in assets and you can’t anticipate that your gross receipts would exceed $50,000 per year,” he said.

The form only requires a $400 application fee.

The idea is that most of the nonprofits filing with the 1023-EZ form will receive tax-exempt status within a couple of months.

For the most part, the shortened form is being lauded, but there are some concerns that fraud could occur because of the bare-bones nature of the form.

“There is some potential there for problems, but from where I sit, I think it’s great,” Flickinger said. “Sometimes people have this great idea — they want to do good things, but the upfront time delay, costs and hassle is more than they want to take on, or perhaps the idea won’t have as much use if they have to wait for a year.”

Some of the grumbling over the 1023-EZ has people wondering if it will be available for very long. Flickinger said anyone considering starting a nonprofit might want to take advantage of what could be a brief window of opportunity to get up and running in a short period of time.

“It’s not necessarily going to go away, but it could, or it could become a little more in depth than what it is right now,” he said.

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