The Internal Revenue Service (IRS) tax-exempt scandal has resulted in a number of casualties but perhaps none more than small tax-exempt organizations who have found themselves trapped in the black hole that is the application process. It used to be that clean applications would wait approximately 30 days for approval. Occasionally, waits could get bumped to 90 days – but that was fairly unusual.
Now? This today, from the IRS website:
The average age of our pending application inventory now is October 2013.
Yes, that does mean that ten months – or about 300 days – after an initial application, organizations are still waiting to hear about tax-exempt status. That kind of wait time is ridiculous not only for tax-exempt organizations but for individuals who wish to support them.
Tax professionals have been begging the IRS to do something. It seems they were listening. The IRS today introduced a new, shorter application form to help small charities apply for 501(c)(3) tax-exempt status.
IRS Commissioner Koskinen alluded to the program in his speech earlier this year at the National Press Club. It was an exciting prospect but Commissioner Koskinen wasn’t talking timing or specifics at the time.
Today, however, the IRS announced that the new federal form 1023-EZ has been made available beginning on July 1, 2014. The form, available on the IRS web site, is just three pages long; in contrast, the traditional form 1023 is 26 pages long. The new form must be filed online.
The IRS estimates that most small organizations – as many as 70% of applicants – will qualify to use the new streamlined form. To qualify, gross receipts for the organization must be $50,000 or less and the organization must have assets worth $250,000 or less.
The IRS currently processes about 70,000 applications for tax-exempt status each year. For 2014, however, the IRS backlog is hovering around 60,000. Assuming that the 70% number is correct, that means that nearly 50,000 applicants have a better shot of not getting stuck in the queue.
Commissioner Koskinen said about the change, “This is a common-sense approach that will help reduce lengthy processing delays for small tax-exempt groups and ultimately larger organizations as well. The change cuts paperwork for these charitable groups and speeds application processing so they can focus on their important work.”
Will this new application program cause more problems than it will potentially solve by rushing smaller organizations through the process? Commissioner Koskinen doesn’t think so, saying, “We believe that many small organizations will be able to complete this form without creating major compliance risks. Rather than using large amounts of IRS resources up front reviewing complex applications during a lengthy process, we believe the streamlined form will allow us to devote more compliance activity on the back end to ensure groups are actually doing the charitable work they apply to do.”
For more information about the new streamlined application process, check out Revenue Procedure 2014-40 (downloads as a pdf).