Filed under: Tax Compliance & Planning

At long last, the process for applying for exemption has entered the twenty-first century. Currently the Form 1023, the application for exemption under Internal Revenue Code Section 501(c)(3), may be submitted electronically. However, after April 30, 2020, the IRS will only accept electronic filing of the form and online payment of the user fee. Paper copies of Form 1023 will no longer be accepted.

The IRS expects the change to improve processing time, similar to how Form 1023-EZ electronic submissions did when that form first went on-line in 2014.

“Filing electronically reduces errors, and we believe this will help provide a smoother application process for those seeking tax exemption,” claimed Tammy Ripperda, Commissioner of the IRS Tax Exempt and Government Entities division.

Although the new electronic submission requirement for Form 1023 is effective as of January 31, 2020, there is a 90-day grace period during which the IRS will continue to accept paper versions of the form.

Submitting the Application

The first step in completing the application is to create an account at www.pay.gov. After that is completed, organizations can search for the Form 1023, choose either the Form 1023 or 1023-EZ, and fill out the appropriate paperwork. Attachments and required documents must be in a single PDF file, not exceeding 15MB, and uploaded at the end of the application.

This PDF must contain:

  • Organizing document and any amendments (e.g., articles of incorporation, constitution, trust document, etc.),
  • Bylaws, if adopted,
  • Signed and completed Form 2848, Power of Attorney or Declaration of Representative or Form 8821, Tax Information Authorization, if applicable,
  • Supplemental responses, if applicable, and
  • Expedited handling request, if applicable.

If the PDF file exceeds the 15MB limit, you must remove any items over the limit and contact IRS Customer Accounts Services at 877-829-5500 for assistance on how to submit the removed items.

The current user fee for the Form 1023 is $600. Applicants must pay the user fee through www.pay.gov when submitting the form. Payment can be made directly from a bank account or by credit/debit card.

Form 1023-EZ is still available to eligible organizations if:

  • The organization expects annual gross receipts of $50,000 or less in the current taxable year and the next two years;
  • The organization had annual gross receipts of $50,000 or less in each of the past three years; and
  • The organization has total assets with fair market value of $250,000 or less.

Certain types of organizations may not use the Form 1023-EZ. They include, among others, churches, schools, hospitals, medical research organizations, supporting organizations, foreign organizations, and successors to for-profit entities

More information may be obtained at the IRS website and in Rev. Proc. 2020-8.

If you have questions regarding your Form 1023s, please contact a Clark Nuber professional.

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