Streamlined tax exemption form could help many small nonprofits

This is a follow-up to a piece we did recently on setting up nonprofit corporations in Massachusetts.

As we discussed in our March 19 post, the applicable law for setting up nonprofits and regulating them is primarily state law. But IRS regulations on tax-exempt status are also important.

In this post, we will take note of recent changes by the IRS in the form for nonprofit organizations to use in applying for tax-exempt status.

The purpose of the changes is to streamline the applicable form and make tax compliance easier for small nonprofits. The regular form for applying for 501(c)(3) status, Form 1023, runs to 26 pages.

But the IRS has now come up with a new form, Form 1023-EZ, that boils things down to two pages.

Though Form 1023-EZ has not yet been officially released, it is expected to be available within a few months.

The proposed simplified form could still be tweaked before it goes into use. But the IRS’s intention is to make it available to nonprofits that meet certain criteria.

In order to make use of the streamlined form, an organization cannot be too big, either in gross receipts or in total assets. But for an organization with no more than $200,00 in annual receipts, and total assets of no more than $500,000, the new form will likely be preferable.

In short, the new, streamlined form should make it easier for smaller nonprofits to apply for an exemption from federal taxes.

There are, however, certain nonprofit organizations, that are not permitted to use the new form. These organizations include churches, colleges and other entities.

Source: accountingweb, “”IRS simplifies Tax-Exempt Applicationsn for Small Nonprofits,” Ken Berry, May 5, 2014