The Internal Revenue Service has expanded its electronic filing requirements to now cover applications for recognition of tax exempt status. The new policy and procedures are set out in IRS News Release IR-2020-25 and Revenue Procedure 2020-8 (PDF).
One of the most significant events in the life cycle of a new charitable organization is obtaining recognition of tax exempt status. Status as a Section 501(c)(3) entity allows donors to make tax-deductible contributions to the organization, allows the organization to seek exemption from many state and local taxes, qualifies the organization for favorable postal rates on bulk mailings, and provides other potential benefits.
Effective April 30, 2020, the “Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code,” Form 1023, must be filed electronically. The IRS began accepting electronically filed Forms 1023 as of January 31, 2020, but has given entities a “grace period” of 90 days to file paper versions of the Form 1023, before making electronic filing mandatory.
The short-form version of the exemption application, Form 1023-EZ, has been subject to mandatory electronic filing since July 1, 2014. Many of the procedures in place for the Form 1023-EZ will now apply to the long-form application.
According to the IRS news release, “The IRS expects the electronic Form 1023 benefits to mirror those realized when Form 1023-EZ went online in 2014. IRS statistics show …[an] improved application processing time … while maintaining similar approval and rejection rates ….”
The Form 1023 must be accompanied, as in the past, with copies of organizational documents (articles of incorporation, bylaws, etc.), as well as separate supplemental responses to questions on the Form 1023.
Instructions at Pay.gov, the site at which the electronic filing is initiated, direct applicants to create a “single pdf file” with all of these attachments to upload at the end of the Form 1023. If the pdf file exceeds 15MB, the applicant must contact the IRS for special delivery instructions.
The required user fee for Form 1023 will remain $600 for 2020. The fee is paid through Pay.gov when the Form 1023 is submitted.
The attorneys of the Tax group at Woods Rogers PLC have considerable experience in representing non-profit organizations, including assisting new organizations with Form 1023 filings. We look forward to the opportunity to assist you in putting your mission and purpose into action.