IRS Form 1023 EZ & Qualification for Form 1023EZ Explained
What is Form 1023EZ and does my organization Qualify?
On July 1st, 2014, The IRS released its short and “easy” version of the Form 1023, the application for 501c3 tax exemption. This new release is nothing but a bad joke and failure on so many level that I don’t even know where to begin.
Form 1023 EZ is a three page form that tries to simplify the process of obtaining tax exemption for nonprofit organizations through an honor system by checking a few yes and no boxes and signing a somewhat of an affidavit that what the applicant is saying is true, with no checks and balance, no reviews, and almost no human intervention on IRS’s part. Most nonprofit organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible. This does not include churches, schools, hospitals, and many other types of organizations.
There are many problems with the Form 1023 EZ, and the IRS astonishingly pushed it forward in record time and it’s now in effect. Form 1023 EZ virtually opens up the once seemingly difficult process of obtaining tax exemption to the most undesirable organizations, liars, daydreamers, and pure idiots. Not only it will flood the nonprofit sector with useless mushroom like organizations, it will cut the funding for the real nonprofit organizations on a grand scale as every schmuck with $400 in his pocket can now apply for funding and solicit donations, tax free.
Who should file the Form 1023 EZ?
Incompetent 501c3 applicants who can’t read or write
Many of the applicants who choose to use the Form 1023EZ are literally illiterate folks who are incapable of writing a Narrative Description of Activities for the real Form 1023. How do I know? They call me all day long. Thanks to the IRS, I won’t have to deal with this bunch any more.
Those who woke up one day and thought it was a good idea to start a nonprofit organization
The day dreamers will benefit greatly from this form as it takes a mere 20 minutes to go from idea to full tax exemption. The fact that they will fail within the first few months and will lose the $400 application fee is trivial. The important thing for the IRS is to get their $400 and to hell with them afterwards.
Organizations who don’t care about the success of their nonprofit organization whatsoever
The long version of the Form 1023 is long for a reason. Sure it has its goofs and desperately needs to be revised, but it’s an education for the budding organizations that you CANNOT get from the Form 1023 EZ version. It goes through many many scenarios and asks many questions to determine the applicant eligibility and intentions, while educating them with tax laws and pitfalls.
Many applicants have ditched the idea of opening a nonprofit organization just reading half way through the form and they actually have made the right decision, saving themselves the application fee and heartaches down the road. Running a nonprofit organization is not for everyone, not even by a long shot, and the Form 1023 EZ makes it unrealistically easy for everyone to take a failing crack at it. By using the Form 1023EZ you might get approved faster but fail you will. Mark my words.
Organizations who like to increase their chance of being audited by the IRS a million-fold
The main reasons mentioned by the IRS for creating this joke of a form is to decrease application review time by shifting the attention from reviewing applications to auditing organizations. Who do you think they will audit first? An organization that filled the long form and has given every detail about their existence and plans, or the organization that is virtually untested and unknown on every aspect?
Organizations who want to kiss 99% of all possible grants goodbye
One of the qualification clauses for using the Form 1023-EZ is that your organization CANNOT maintain separate accounts for donors to advise how the funds will be spent! Well I hate to break it you, but almost all grants, small or large, have stipulations on how the money should be used. Which means that if you ever want to apply for a grant, you CANNOT use the Form 1023EZ.
You should ALWAYS honor special requests, notes, terms, and conditions which are specified by contributors and should maintain a separate account for that specific donation.
Organizations who underestimate their income to pay the lesser fee and faster turn around
Almost 7 out of 10 applications that I review has intentional and illegal budget miscalculation and people do it to get away with paying $400 less for the application fee. One of the qualification clauses on the Form 1023EZ is that your organization CANNOT have more than $50,000 gross income in ANY given year for the next consecutive three years after filing your application. Pay a close attention to the 3 years requirement because it does not include the year that you’re applying.
From my experience, a large majority of nonprofit organizations that budget and receive less than $50,000 a year will fail in the first two years and will dissolve the organization. The reason for that is that they have a dream of doing something but don’t have the ability to raise the funds or the comprehension that helping others requires money. You simply cannot run a Falafel stand with $50,000 gross income let alone a nonprofit organization.
Let’s assume you have a Falafel stand and you sell 60 Falafel a day at $4 apiece. Your gross income based on 5 days a week for one year is $60,000! That’s even assuming that you have no rush hour and you don’t live in New York City.
Charlatans, thieves, cheaters, liars, fraudsters, and anyone who has a beef with the federal government.
The Form 1023 EZ makes it a fool-proof way of obtaining federal 501c3 tax exemption status virtually overnight and start collecting tax deductible donations from unsuspecting donor for your own benefit. You can buy a boat, a helicopter, couple of mansions in Belize, and have 24/7 hookers swimming in your ocean view pool. There has never been a better time to do it! You’ll have a long and prosperous time embezzling before even a faint red flag go up anywhere. Happy stealing.
I could go on and on but bottom line is that the only honest organizations that could possibly benefit from this joke of a form are the very, very, very, small animal rescue organizations that don’t need big funds. If you are not feeding stray dogs and cats in streets, look the other way and use the long version of the Form 1023. Don’t use the watered down Form 1023-EZ, you will regret it big time sooner than later.
And Shame on you IRS for this approach. You did not listen to many who sent in great comments regarding the revisions and cranked it out like there was no tomorrow.