When your organization is ready to apply for tax-exempt status, there are two applications available – Form 1023 or Form 1023-EZ.
- The original long Form 1023 is composed of 40 pages and requires detailed information about your organization.
- The shorter Form 1023-EZ is only three pages long and requires brief information about your organization. The caveat here is the restrictions on who can use this shorter form.
(Download Video Transcript)
What You Need to Know About Form 1023-EZ
To determine if you are eligible to file the Form 1023-EZ, you must complete the Form 1023-EZ Eligibility Worksheet which is included in the IRS's Instructions for Form 1023-EZ.
The form includes 30 “yes or no” questions and if your organization answers “yes” to any of the questions, it is required to file the standard Form 1023.
Before you begin the eligibility worksheet, here are a few things you should know:
- There are some organization types that are not eligible to use Form 1023-EZ including churches, schools, colleges, universities, hospitals, agricultural research organizations, health maintenance organizations, and accountable care organizations.
- The organization’s annual gross receipts cannot exceed $50,000 for the next three years.
- The organization’s total assets cannot exceed $250,000 in fair market value.
- The organization must be founded in the United States.
- The organization must be registered as a corporation, unincorporated, association, or trust. Entities formed as limited liability companies (LLC) are not eligible to file Form 1023-EZ.
- The organization cannot have donor-advised funds.
- The average processing time for Form 1023-EZ is about 2-4 weeks. By contrast, processing time for Form 1023 can take between 3 and 6 months and may take up to a year.
Along with the restrictions presented, be sure that your organizing documents are properly drafted to avoid jeopardizing the application. For example, be sure you have an appropriately defined tax-exempt purpose.
It is always best to work with an experienced advisor to complete either Form 1023 or Form 1023-EZ. Your advisor will help you determine which filing option is best for your organization.
© 2022 SVA Certified Public Accountants
FAQs
Form 1023 must be completed online. The timeline for IRS review and approval can take 5 to 8 months. Form 1023-EZ does not require nearly the amount of information as Form 1023 does and also costs much less. You can file for tax-exempt status at a much lower cost of $275 using Form 1023-EZ.
Should I file Form 1023 or 1023-ez? ›
If your organization will and must provide financial literacy, it is best to file the long form 1023 to avoid wasted time and resources. With that being said, there is no time better than now to get your 1023EZ application underway. If you are interested in filing for your 501(c)3 application contact us for assistance!
Who is eligible to use Form 1023-EZ to apply for an exemption? ›
Only organizations that anticipate gross receipts to be at or below $50,000 annually are eligible. There are many other qualifications and any organization that wishes to file the Form 1023-EZ must complete the eligibility worksheet before submitting the form online.
What happens if I use Form 1023-EZ and bring in more than $50,000? ›
In either case, your organization will be on the IRS radar, and it could lose its exempt status entirely. Remember too, you are signing the application under penalty of perjury. If you have any expectation of more than $50,000 in revenue, you would be far wiser to file the full Form 1023 now.
How long does it take for a 1023-EZ to be approved? ›
IRS Form 1023-EZ is much shorter and less complicated than Form 1023. Additionally, the IRS is essentially rubber-stamping these applications, which means the average processing time is 2-4 weeks.
How much does it cost to file a 1023-EZ? ›
How much is the user fee for an exemption application? The user fee for Form 1023 is $600. The user fee for Form 1023-EZ is $275. The user fees must be paid through Pay.gov when the application is filed.
Can a private foundation use Form 1023-EZ? ›
Eligible organization may submit a shortened version of the standard Form 1023 application, Form 1023-EZ, Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code. Private operating foundations and certain other organizations cannot file a Form 1023-EZ.
What is the difference between a 501c3 and a 1023? ›
A 501(c)(3) and 1023 are not the same things, but rather complementary of one another. Section 501(c)(3) is part of the Internal Revenue Code that describes how to become tax-exempt status and Form 1023 must be filed in order to achieve that status.
What is the highest compensated employee on Form 1023? ›
Part V of Form 1023 asks questions about compensation and other financial arrangements with officers, directors, trustees, highest compensated employees (receiving more than $100,000 annually) and highest compensated independent contractors (receiving more than $100,000 annually), along with certain other related ...
Can a 501c3 have too much money? ›
So how much money can nonprofits keep? There really is no limit, and at the end of the day it depends on a specific nonprofit's situation and how much income they can earn through various fundraising strategies.
Smaller religious organizations may be eligible to use Form 1023-EZ, Streamlined Application for Recognition of Exemption. However I do not recommend it. A church applying for 501c3 exemption cannot use the form 1023 EZ.
Who is eligible for 1023 EZ? ›
Specifically, applicant organizations must satisfy the IRS definition of small. That means they must: Anticipate less than $50,000 in annual gross receipts each year for the first 3 years, and. Have already had less than $50,000 in annual gross receipts for all 3 prior years (if any), and.
Who is exempt from filing Form 1023? ›
The following types of organizations are not required to file Form 1023 for recognition of exemption under Internal Revenue Code section 501(c)(3): Churches, including synagogues, temples and mosques. Integrated auxiliaries of churches and conventions or associations of churches.
What are the assets for 1023 EZ? ›
Typically, organizations have to have total assets under $250,000 and gross revenue below $50,000 to qualify for form 1023-EZ. Private operating foundations cannot file form 1023-EZ. The fee to file form 1023-EZ is only $275 and at around 90 days, the review process is shorter than the form 1023 review process.
Does Form 1023 have to be filed electronically? ›
Organizations must electronically file this form to apply for recognition of exemption from federal income tax under section 501(c)(3). Note. You may be eligible to file Form 1023-EZ, a streamlined version of the application for recognition of tax exemption.
.webp?width=2000&name=sva-certified-public-accountants-biz-tips-form-1023%20vs%201024-which-form-should-you-use%20(1).webp "Form 1023 vs 1023-EZ: Choosing the Right Tax Exemption Form (1)")
