The Internal Revenue Service of the United States is widely known and, by very many, widely disliked. Many people associate them with taxes, but their function is more complex than people would think. Recently I began the process of creating a nonprofit, and one of the critical steps in doing so brought me to the IRS. Specifically, when an organization wants to get status as a nonprofit, there is a specific form that has to be completed. However, the IRS has a variation of the form that is a positive thing for United States organizations to have access to.
For those who don’t know, Form 1023 is an IRS form that needs to be completed for an organization to apply for 501(c)(3) nonprofit status; however, there are two different variations of the form. There is Form 1023 and Form 1023-EZ, and there are some critical differences between the two. To start, the filing fee of the complete form is $600, compared to $275 for the “EZ” version. More significantly, the lengths of the forms are vastly different. According to a guide by Springly, “Form 1023 is housed in a 40-page PDF, while the EZ version is only three pages.” Finally, the processing time for the EZ version is two to four weeks, compared to three-six months for Form 1023.
Outside of the process of filing itself, in order to be eligible to file Form 1023-EZ, an organization must “Anticipate less than $50,000 in annual gross receipts each year for the first three years… have already had less than $50,000 in annual gross receipts for all three prior years (if any), and have total assets valued at under $250,000,” according to 501c3.org. Simply put, the only organizations eligible to fill out this version of the form are much smaller and don’t handle the same level of money that larger organizations do. A larger organization that exceeds these requirements by a massive amount, like the Red Cross having $2.37 billion in net assets according to its 2021 Annual Report, is not eligible for the Form 1023-EZ.
While money and time are prominent factors for many organizations, the most significant difference that I have seen between the two forms is the level of complexity. A simple application to become a nonprofit makes it a doable project. I personally have filed Form 1023-EZ as someone with no legal background and no college degree. This enables people to easily and quickly get access to 501(c)(3) status, which according to the IRS, makes “Organizations eligible to receive tax-deductible contributions in accordance with Code section 170.”
This simple process opens the way for people to start organizations with the intention of doing good in the world. Not only does it reduce the complexity of the process, but it also helps organizations cut costs and save time. Six hundred dollars is a lot, especially for smaller organizations, and six months is an excessive amount of time to wait before getting an organization off the ground.
Admittedly, there are certainly drawbacks to this form. For example, in 2016, Harbor Compliance, a “state licensing compliance platform,” posted an article stating, “IRS Study Reveals that 37% of Form 1023-EZ Applicants Improperly Received 501(c)(3) Tax Exemptions.” Yet despite the issues, I would still argue that Form 1023-EZ is ultimately a good thing, as it gives small organizations a simple way to do good in the world. When I went to fill out the form for my own nonprofit, I found that Form 1023-EZ was simple enough to file. With the process of creating a new organization being complex enough, a shorter form is extremely convenient, especially when you don’t have professional help. Nonprofit organizations do a lot to help people, especially small, local organizations, and the IRS should be commended for making it easier for them to obtain the status needed to be successful.