The IRS recently announced that it will implement a post-determination compliance program to follow up on smaller exempt organizations that obtained their tax-exempt status by submitting a Form 1023-EZ Application for Exemption. The five-page Form 1023-EZ Application became available last summer as a way for smaller nonprofit organizations to apply for tax-exempt status without having to complete the traditional Form 1023 Application, which can be over 25 pages and include numerous exhibits. For more information on the Form 1023-EZ Application, click here.
As of the end of 2014, the IRS had received over 20,000 Form 1023-EZ Applications and approved approximately 95% of those applications. While the Form 1023-EZ Application has drastically cut down on the IRS' backlog of applications for tax-exempt status, critics of the new Form 1023-EZ Application believe that the IRS should be asking more questions regarding a nonprofit organization's activities and finances. In lieu of disclosing such items on the Form 1023-EZ Application, applicants are instead required to attest, under penalties of perjury, that they will follow all IRS rules and regulations regarding exempt organizations.
In what is likely a response to critics' concerns, in 2016, the IRS will begin following up with a random sample of smaller exempt organizations that previously submitted a Form 1023-EZ Application. The purpose of the follow-up will be to ensure that smaller exempt organizations that have been operating for a year or more have been and are in compliance with the IRS rules and regulations applicable to exempt organizations.
Thus, smaller exempt organizations that previously submitted a Form 1023-EZ Application should ensure they remain compliant with all rules and regulations governing exempt organizations.
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