Form 1023

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Form 1023 is a United States IRS tax form, also known as the Application for Recognition of Exemption Under 501(c)(3) of the Internal Revenue Code. It is filed by nonprofits to get exemption status. On January 31, 2020, the IRS abandoned the paper format of the form 1023. Those who used the paper version were given 90 days grace period and that ended on April 30, 2020. Going forward, every application has to be filed online through Pay.gov portal. [1]

Contents

Eligibility

The following organizations are eligible to file Form 1023 under section 501(c)(3) of the Internal Revenue Code:

However, the IRS allows certain groups to be automatically exempt from filing Form 1023, yet still eligible to be classified as a 501(c)(3) organization:

Furthermore, to qualify for tax-exempt status, the organization must be:

Tax-exempt organizations may file Form 5768 to influence legislative activity.

Filing requirements

Form 1023 requires the following information about an applying charity:

Form 1023 Application user fee for the long form is $600, and the Form 1023-EZ is $275 respectively. [8]

Form 1023-EZ

Form 1023-EZ is a streamlined version of Form 1023; it was introduced in 2014 [9] [10] because the original Form 1023 can take over nine hours to complete, and many organizations were waiting over a year for review. About 52% of all organizations filed Form 1023-EZ, with an average turnaround time of 9 days. Of the organizations submitted, 95% of them were approved for charity status. [11]

Requirements

Organizations applying for tax-exempt status through Form 1023-EZ can apply online at Pay.gov if they meet the following requirements:

Organizations that do not fall under these requirements may still file the original Form 1023. [12]

History

Form 1023-EZ was created when the National Taxpayer Advocate suggested simplifying the form in 2011, and the IRS eventually followed that advice in 2013. The form was finally introduced in July 2014. [9] [10] While the majority of charities will file through Form 1023-EZ, the move to simplify it wasn't without its criticisms. As Form 1023-EZ doesn't require a list of charity activities or supporting documentation, those activities will go unknown to the IRS, and there is no protection against uncharitable organizations filing the form for tax exemption status. [13] In the 2015 Annual Report, the IRS reported an audit on Form 1023-EZ revealing that 2 in 5 charities that filed Form 1023-EZ would not qualify for charity status if they had gone through the full Form 1023. [14] Furthermore, in 2016, the application fee for Form 1023-EZ had been reduced from $400 to $275. [15]

See also

Notes

  1. ↑ An LLC will not qualify for tax-exempt status if it has either private shareholders or individuals who are members. [5] An LLC with only tax-exempt members might qualify for tax-exempt status. [5] [6] [7]

Related Research Articles

Tax exemption is the reduction or removal of a liability to make a compulsory payment that would otherwise be imposed by a ruling power upon persons, property, income, or transactions. Tax-exempt status may provide complete relief from taxes, reduced rates, or tax on only a portion of items. Examples include exemption of charitable organizations from property taxes and income taxes, veterans, and certain cross-border or multi-jurisdictional scenarios.

<span class="mw-page-title-main">Charitable organization</span> Nonprofit organization with charitable purpose

A charitable organization or charity is an organization whose primary objectives are philanthropy and social well-being.

United States non-profit laws relate to taxation, the special problems of an organization which does not have profit as its primary motivation, and prevention of charitable fraud. Some non-profit organizations can broadly be described as "charities" — like the American Red Cross. Some are strictly for the private benefit of the members — like country clubs, or condominium associations. Others fall somewhere in between — like labor unions, chambers of commerce, or cooperative electric companies. Each presents unique legal issues.

The Employer Identification Number (EIN), also known as the Federal Employer Identification Number (FEIN) or the Federal Tax Identification Number (FTIN), is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to business entities operating in the United States for the purposes of identification. When the number is used for identification rather than employment tax reporting, it is usually referred to as a Taxpayer Identification Number (TIN). When used for the purposes of reporting employment taxes, it is usually referred to as an EIN. These numbers are used for tax administration and must not be used for any other purpose. For example, an EIN should not be used in tax lien auction or sales, lotteries, or for any other purposes not related to tax administration.

A Group Exemption Letter or (GEL) is a special letter that is issued by the United States Internal Revenue Service (IRS). A GEL pertains to organizations that have been recognized by the IRS as tax exempt organizations.

A 501(c) organization is a nonprofit organization in the federal law of the United States according to Internal Revenue Code. Such organizations are exempt from some federal income taxes. Sections 503 through 505 set out the requirements for obtaining such exemptions. Many states refer to Section 501(c) for definitions of organizations exempt from state taxation as well. 501(c) organizations can receive unlimited contributions from individuals, corporations, and unions.

Laws regulating nonprofit organizations, nonprofit corporations, non-governmental organizations, and voluntary associations vary in different jurisdictions. They all play a critical role in addressing social, economic, and environmental issues. These organizations operate under specific legal frameworks that are regulated by the respective jurisdictions in which they operate. Such law can facilitate the workings of nonprofit organizations, but they can also hamper their functioning.

Bob Jones University v. Simon, 416 U.S. 725 (1974), is a decision made by the Supreme Court of the United States holding that Bob Jones University, which had its 501(c)(3) status revoked by the Internal Revenue Service for practicing "racially discriminatory admissions policies" towards African-Americans, could not sue for an injunction to prevent losing its tax-exempt status. The question of Bob Jones University's tax-exempt status was ultimately resolved in Bob Jones University v. United States, in which the court ruled that the First Amendment did not protect discriminatory organizations from losing tax-exempt status.

A 501(c)(3) organization is a United States corporation, trust, unincorporated association or other type of organization exempt from federal income tax under section 501(c)(3) of Title 26 of the United States Code. It is one of the 29 types of 501(c) nonprofit organizations in the US.

The United States Internal Revenue Service (IRS) uses forms for taxpayers and tax-exempt organizations to report financial information, such as to report income, calculate taxes to be paid to the federal government, and disclose other information as required by the Internal Revenue Code (IRC). There are over 800 various forms and schedules. Other tax forms in the United States are filed with state and local governments.

<span class="mw-page-title-main">Private foundation</span> Type of charitable organization

A private foundation is a tax-exempt organization that does not rely on broad public support and generally claims to serve humanitarian purposes.

A religious corporation is a type of religious non-profit organization, which has been incorporated under the law. Often these types of corporations are recognized under the law on a subnational level, for instance by a state or province government. The government agency responsible for regulating such corporations is usually the official holder of records, for instance, the Secretary of State. In the United States, religious corporations are formed like all other nonprofit corporations by filing articles of incorporation with the state. Religious corporation articles need to have the standard tax-exempt language the IRS requires. Religious corporations are permitted to designate a person to act in the capacity of corporation sole. This is a person who acts as the official holder of the title on the property, etc.

<span class="mw-page-title-main">Form 990</span> United States Internal Revenue Service form

Form 990 is a United States Internal Revenue Service (IRS) form that provides the public with information about a nonprofit organization. It is also used by government agencies to prevent organizations from abusing their tax-exempt status. Some nonprofits, such as hospitals and other healthcare organizations, have more comprehensive reporting requirements.

<span class="mw-page-title-main">Church of Scientology Flag Service Organization</span>

The Church of Scientology Flag Service Organization, also known as Flag or FSO, is an American 501(c)(3) non-profit corporation. Within the worldwide network of Scientology corporations and entities, the FSO is officially referred to as the "spiritual headquarters" of the Church of Scientology. The organization is located in Clearwater, Florida.

Regan v. Taxation with Representation of Washington, 461 U.S. 540 (1983), was a case in which the United States Supreme Court upheld lobbying restrictions imposed on tax-exempt non-profit corporations.

A nonpartisan organization, in American politics, is a non-profit organization organized United States Internal Revenue Code that qualifies certain non-profit organizations for tax-exempt status because they refrain from engaging in certain political activities prohibited for them. The designation "nonpartisan" usually reflects a claim made by organizations about themselves, or by commentators, and not an official category per American law. Rather, certain types of nonprofit organizations are under varying requirements to refrain from election-related political activities, or may be taxed to the extent they engage in electoral politics, so the word affirms a legal requirement. In this context, "nonpartisan" means that the organization, by US tax law, is prohibited from supporting or opposing political candidates, parties, and in some cases other votes like propositions, directly or indirectly, but does not mean that the organization cannot take positions on political issues.

<span class="mw-page-title-main">Church of Scientology International</span> Corporation operated by the Church of Scientology

The Church of Scientology International (CSI) is a California 501(c)(3) non-profit corporation. Within the worldwide network of Scientology corporations and entities, CSI is officially referred to as the "mother church" of the Church of Scientology.

<span class="mw-page-title-main">IRS targeting controversy</span> 2013 American tax administration scandal

In 2013, the United States Internal Revenue Service (IRS), under the Obama administration, revealed that it had selected political groups applying for tax-exempt status for intensive scrutiny based on their names or political themes. This led to wide condemnation of the agency and triggered several investigations, including a Federal Bureau of Investigation (FBI) criminal probe ordered by United States Attorney General Eric Holder. Conservatives claimed that they were specifically targeted by the IRS, but an exhaustive report released by the Treasury Department's Inspector General in 2017 found that from 2004 to 2013, the IRS used both conservative and liberal keywords to choose targets for further scrutiny.

<span class="mw-page-title-main">H.Res. 565 (113th Congress)</span>

The resolution H.Res. 565, "Calling on Attorney General Eric H. Holder, Jr., to appoint a special counsel to investigate the targeting of conservative nonprofit groups by the Internal Revenue Service," was passed by the United States House of Representatives during the 113th United States Congress. The simple resolution asks U.S. Attorney General Eric Holder to appoint a special counsel to investigate that 2013 IRS scandal. The Internal Revenue Service revealed in 2013 that it had selected political groups applying for tax-exempt status for closer scrutiny based on their names or political themes.

A 501(h) election or Conable election is a procedure in United States tax law that allows a 501(c)(3) non-profit organization to participate in lobbying limited only by the financial expenditure on that lobbying, regardless of its overall extent. This allows organizations taking the 501(h) election to potentially perform a large amount of lobbying if it is done using volunteer labor or through inexpensive means. The 501(h) election is available to most types of 501(c)(3) organizations that are not churches or private foundations. It was introduced by Representative Barber Conable as part of the Tax Reform Act of 1976 and codified as 26 U.S.C. § 501(h), and the corresponding Internal Revenue Service (IRS) regulations were finalized in 1990.

References

  1. ↑ "Form 1023 Instruction Part I (1) Identification of Applicant". Form 1023 Tax Exemption Application Help & 501c3 Instructions. Archived from the original on 2022-05-14. Retrieved 2022-05-14.
  2. ↑ "What is Tax Exemption or Exempt Status & who can qualify". Form 1023 Tax Exemption Application Help & 501c3 Instructions. Archived from the original on 2022-05-14. Retrieved 2022-05-14.
  3. ↑ 26 U.S.C.   § 508(c)(1)(A)
  4. ↑ 26 U.S.C.   § 508(c)(1)(B)
  5. 1 2 McCray, Richard A.; Thomas, Ward L. "B. Limited Liability Companies as Exempt Organizations Update". Exempt Organization Continuing Professional Education Text. 2001.
  6. ↑ Rev. Rul. 71-529, 1971 2 C.B. 234 Archived 2017-02-18 at the Wayback Machine . Internal Revenue Service. 1971.
  7. ↑ Rev. Rul. 72-369, 1972-2 C.B. 245. Internal Revenue Service. 1972.
  8. ↑ "IRS Form 1023 – User Fee Information 2022". Archived from the original on 2024-07-12. Retrieved 2024-12-29.
  9. 1 2 Moroney, Linda S.; Sullivan, T.J.; Romigh, Taylor A. (July 12, 2014). "IRS Introduces New Form 1023-EZ to Streamline Applications for 501(c)(3) Tax-Exempt Status". The National Law Review . Archived from the original on January 21, 2017. Retrieved January 21, 2017. On July 1, 2014, the Internal Revenue Service (IRS) launched a new Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code
  10. 1 2 Nevius, Alistair M. (March 1, 2016). "Form 1023-EZ: First-year results are in". Journal of Accountancy. Retrieved January 21, 2017. In 2014, the IRS introduced a streamlined process to allow small organizations to more easily apply for tax-exempt status.
  11. ↑ Benesch Friedlander and Aranoff LLP (April 1, 2016). "Form 1023-EZ in Practice: Reflecting On Year One". Lexology. Retrieved 21 January 2017.
  12. ↑ "Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code". IRS. Archived from the original on 16 January 2017. Retrieved 21 January 2017.
  13. ↑ Chuck McLean (6 June 2016). "Is the IRS Form 1023-EZ Too EZ?". GuideStar. Archived from the original on 2 February 2017. Retrieved 21 January 2017.
  14. ↑ James Gilmore (22 January 2016). "IRS Study Reveals that 37% of Form 1023-EZ Applicants Improperly Received 501(c)(3) Tax Exemptions". Harbor Compliance. Archived from the original on 16 March 2016. Retrieved 21 January 2017.
  15. ↑ "IRS Reduces Fee for Short-Form Charity Application". The Chronicle of Philanthropy. 16 July 2016. Archived from the original on 2 February 2017. Retrieved 21 January 2017.
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