1023 v. 1023-EZ

To apply for tax-exempt status there are two form options, the 1023 and the 1023-EZ. Now just because there is an “EZ” attached to the end of one of the choices, does not mean it is actually “easy” to fill out. Knowing which application to use is critical when trying to obtain tax-exempt status for your nonprofit.

Form 1023

• IRS Filing Fee: $600
• Length: About 40 pages long including additional supplements and schedules

Form 1023 is the standard application for requesting IRS tax-exempt status. Organizations that anticipate having a gross income of more than $50,000 the first three years of existence must file this form. It is a multiple part form with questions about various areas of business. The form contains sections on identification, organizational structure, organizing documents, nonprofit activities, finances, and nonprofit classification.

At the end of the application supplements and schedules are added depending on organization type. Some of the items that should be included in the supplement are Articles of Incorporation, Bylaws, and a Conflict of Interest Policy. The IRS may have an inquiry about your application which can require extra information to be sent for review. You may have to wait 6 months before the IRS decides on your tax-exempt status. For more details about Form 1023, check out our blog post here.

Form 1023-EZ

• IRS Filing Fee: $275
• Length: About 3 pages

The streamlined application for recognition of tax-exempt status is 1023-EZ. Form 1023-EZ is designed for nonprofits with a gross income of less than $50,000 in each of the three years and total assets below $250,000 within the first three years of operation.

Right now, you might be thinking, “well that sounds simple enough, I can fill it out on my own”. While that may be a valid thought, our firm has had to fix multiple 1023-EZ forms for clients because they filled out the form incorrectly or improperly filed their Articles of Incorporation.

For example, the IRS uses something called an NTEE code to help determine the classification of a nonprofit. There are over 600 categories and selecting the one that most accurately represents your nonprofit is not always a simple task. It can also be difficult to determine which “foundation classification” your organization will qualify for.

It is easy to make the mistake of believing that because this form is shorter and less complex than the full Form 1023, there is no need to obtain professional assistance. We highly recommend having an experienced nonprofit attorney help you with your application because if mistakes are made during the application process, they become much more difficult (and expensive!) to fix later on. It is much better (and cheaper!) to ensure it is done correctly the first time.

Whether your nonprofit is going to file a 1023 or a 1023-EZ, Mission Counsel can guide you through the process. We regularly engage with the IRS and have experience with both forms. Schedule a free 15-minute consultation to learn even more ways our firm can help in the establishment of your nonprofit.

Additional Resources:

https://www.irs.gov/pub/irs-prior/f1023--2017.pdf 

https://www.irs.gov/pub/irs-pdf/i1023ez.pdf