Expediting the IRS form 1023 application for nonprofits
How does expediting the IRS form 1023 work?
In general, form 1023 applications are processed in the order received by the IRS. Sometimes, however, the IRS will work a case outside the regular order. For expedited processing to be granted, however, there must be a compelling reason to process the case ahead of others.Compelling reasons include the following:
- A pending grant, where failure to secure the grant will have an adverse impact on the organization’s ability to continue operating.
- A newly created organization providing disaster relief to victims of emergencies.
- IRS errors have caused undue delays in issuing a determination letter.
For a pending grant, the following specific information would help support a request for expedited processing:
- The name of the person or organization committed to giving the grant or asset,
- The amount of the grant or the value of the asset,
- The date the grant will be forfeited or permanently redirected to another organization,
- The impact on the organization’s operations if it does not receive the grant/asset, and
- The signature of a principal officer or authorized representative.
A request for expedited processing must be made in writing and must fully explain the compelling reason. Granting expedited processing is at the discretion of the IRS.
Those who qualify for expedited service:
Disaster Relief – Example #1
Applicant was formed to help victims of an earthquake find temporary housing. Applicant applies for tax-exempt status within a few weeks or months from the date the disaster occurred. The applicant plans to hold a major fund raiser and a popular rock band volunteered its services for the concert. Income from this event is expected to be a significant source of the organization’s annual revenues and plans are to disburse the majority of these funds to find temporary housing for victims of the earthquake. Therefore, the request is approved.
Pending Grant – Example #2
Applicant anticipates gross receipts totaling $100,000 in its first year to carry out its purpose of feeding the homeless in a community. Shortly after the organization applies for tax-exempt status, it is promised a one-time $50,000 grant from the ABC Foundation. The grant is contingent on the applicant organization being recognized as exempt under section 501(c)(3) by a specified date. The expedite request is approved because a significant portion of the organization’s annual income is contingent on the pending grant, and the funds will be lost if exemption is not granted by the specified date.
Pending Grant - Example #3
Organization submits an application for exemption and indicates it plans to operate a drug and alcohol treatment center for teens. The previous center closed years earlier and there is no other substance abuse center within the area. A named member of the community promises to donate a specific amount that will cover the cost of building the center, if the applicant organization can provide proof of exemption under section 501(c)(3) by a specified date. Because the organization cannot open the treatment center without funding for the building, the expedite request is approved.
Those who do NOT qualify for expedited service:
Disaster Relief – Example #1
Applicant was formed to secure housing for the homeless and educate individuals regarding the dangers of hurricanes. Its operations are conducted in several states in the South. The organization’s application is pending review when a major hurricane, affecting states other than those in which the applicant operates, hits. The organization requests expedite treatment and indicates it is providing disaster relief. Because it conducts no activity in states impacted by the hurricane, the expedite request is not approved.
Pending Grant – Example # 2
An organization whose purpose is to provide housing for low-income individuals submits an application for exemption . The organization must provide proof of 501(c)(3) exemption to the Department of Housing and Urban Development before it can receive funds. The applicant does not qualify for expedited treatment because it does not have a commitment for grant funds by a specified date.
Pending Grant – Example # 3
An organization plans to raise $50,0000 annually and make distributions to fire victims in a community. When it applies for exemption, it has a commitment from a specific business to donate $500 to get the organization started if the organization can provide proof of its 501(c)(3) status by a specific date. The request to expedite processing is not approved because the grant is insignificant compared to the organization’s annual revenue, and will not have a major impact on the organization’s ability to operate.
When everything is said and done:
If an exemption application does not contain the required information, the IRS may return it with a letter of explanation, and will not consider the application on its merits. If you resubmit a completed application within the time period indicated in the letter from the IRS, it will be considered received on the original submission date. In that case, if the original submission was timely, the application will be considered timely filed.
Different Application Form Needed
If a different application form is required for your organization, the IRS will so advise your organization and will provide the appropriate application form for your convenience in reapplying under that paragraph, if you wish to do so. Although supporting information previously furnished need not be duplicated, you must provide any necessary additional information required for the application. If your reply is not received within a limited time, your application will be processed only for the paragraph under which you originally applied.
When a specific application form is needed for the paragraph under which your organization qualifies, that form is required before a letter recognizing exemption can be issued. This includes cases in which an exemption letter is modified to recognize an organization’s exempt status under a paragraph other than the paragraph under which it originally established exemption.
Organizations that submit a complete application will receive an acknowledgment from the IRS. Others will receive a letter requesting more information or returning an incomplete application. Applicants also will be notified if the application is forwarded to the Headquarters of the IRS for consideration. These letters will be sent out as soon as possible after receipt of the organization’s application.