Good news for small nonprofit startups!
If you’re starting a small nonprofit organization, you may qualify for some good news: the IRS reduced its application fee.
Some background: Previously, all groups experienced the same process—regardless of size, creating needlessly long delays. All organizations seeking tax exempt status from the IRS must file Form 1023, Application for Recognition of Exemption.
Most tax-exempt groups see this form as long and tedious, requiring much background information. (After all, it’s only reasonable companies seeking tax-exempt status must assure the IRS of their genuinely philanthropic motives and a plan to succeed).
But in 2014 certain small organizations became eligible to file a shortened version of the form online, Form 1023-EZ. With the shorter form came a lower application fee: $400, versus $850 for the full form. As of mid-2016 though, this fee was reduced further to $275.
That’s great news for small startups, but, unfortunately, many organizations cannot meet the criteria. You’re eligible for the shorter form only if you answer “no” to all the following questions:
- Do you project your annual gross receipts will exceed $50,000 in any of the next 3 years?
- Did your annual gross receipts exceed $50,000 in any of the past 3 years?
- Does the fair market value of your total assets exceed $250,000?
- Was your organization formed under the laws of a foreign country?
- Is your mailing address in a foreign country?
- Are you a successor to, or controlled by, an entity suspended as a terrorist organization?
- Are you organized as an entity other than a corporation, unincorporated association, or trust?
- Are you a successor to a for-profit entity?
- Were you previously revoked or are you a successor to a previously revoked organization?
- Are you a church, convention or association of churches?
- Are you a school, college or university?
- Are you a hospital or medical research organization?
- Are you applying for exemption as a cooperative hospital service organization?
- Are you applying for exemption as a cooperative service organization of operating educational organizations?
- Are you applying for exemption as a qualified charitable risk pool?
- Are you requesting classification as a supporting organization?
- Is a substantial purpose of your activities to provide assistance to individuals through credit counseling activities such as budgeting, personal finance, financial literacy, mortgage foreclosure assistance, or other consumer credit areas?
- Do you or will you invest 5% or more of your total assets in securities or funds that are not publicly traded?
- Do you participate, or intend to participate, in partnerships in which you share losses with partners other than section 501(c)(3) organizations?
- Do you sell, or intend to sell carbon credits or carbon offsets?
- Are you a Health Maintenance Organization?
- Are you an Accountable Care Organization (ACO), or an organization that engages in, or intends to engage in, ACO activities?
- Do you maintain or intend to maintain one or more donor-advised funds?
- Are you organized and operated exclusively for testing for public safety and requesting a foundation classification?
- Are you requesting classification as a private operating foundation?
- Are you applying for retroactive reinstatement of exemption after being automatically revoked?
For more details regarding these questions, see the Instructions for Form 1023-EZ. Many organizations can’t take advantage of the new lower fee, but it may make life easier for some.
As our name says, we’re available for accounting and consulting assistance for your nonprofit. Contact us at (904) 398-4747 or Lynn@OnlineStewardship.com. Larger organizations seeking accounting services can find help at our parent organization, Patrick & Robinson CPAs.
