One service that I provide as a CPA specializing in tax-exempt organizations is to assist new entities seeking tax-exempt status.
There is quite a bit of paperwork to be done, much of which is not easy to complete if the organizer is not a CPA or attorney specializing in the area of exempt organizations. For those considering starting a new organization, I have some good news and some bad news.
The IRS recently released a new “EZ” application for recognition under 501(c)(3) of the Internal Revenue Code. This new 1023EZ form is limited to organizations with gross receipts of $50,000 or less and total assets of $250,000 or less. Additionally, the IRS has provided many disqualifying factors that will preclude an organization from using the new 1023EZ, so extra care must be used in reading all the instructions to ensure eligibility. There you will find a checklist for this purpose.
How easy is “EZ”? The new 1023EZ is completed online. It is three pages and requires a $400 user fee. This is significantly reduced from the original form, which is 28 pages, requires many additional attachments, and typically requires an $850 fee.
So what is the catch? The new 1023EZ is very streamlined; so much, in fact, that many nonprofit professionals have expressed concerns this new form does not accomplish the goal of ensuring a new organization is adequately prepared for operation. The new application easily can be completed by a lay-person without seeking professional assistance.
Another point that concerns many professionals is the size of the organizations eligible to use the EZ application, particularly the gross receipts requirement. Many professionals (myself included) discourage the formation of such small organizations. While there are always exceptions to the rules, such small activities often are much more viable and efficient if operated as a program of another, similarly missioned organization.
Plain and simple, the new form makes it all too easy to bring another organization into our world, one that might not be equipped to flourish in the increasingly competitive marketplace of public charities.
Pooled resources, including financial resources, employees and volunteers, typically increase efficiency and provide much better operational continuity. This means increased resources targeted to the programs and services provided by the organization.
Until then, should you decide to start a 501(c)(3) organization, congratulations. You might save time and money, if eligible, use the new 1023EZ form. However, it is important to read all the instructions and seek professional assistance as needed to ensure your organization is operating in accordance with best practices and to properly safeguard your tax-exempt status.
Lastly, consider whether your small program can operate more efficiently by collaborating with another organization.
• Nancy Gonsiorek is a Certified Public Accountant providing audit, tax and consulting services to nonprofit organizations. She can be reached at 815-455-9462 or email@example.com.