If a business entity wants to become a tax-exempt organization, it is not enough to incorporate the organization in a state as a non-profit organization. In the past, if you wanted to apply to the Internal Revenue Service to become a Section 501(c)(3) charitable organization (which is required for individuals to be able to deduct charitable contributions to these organizations on their tax returns), you had to file a Form 1023 application. The form is 26 pages long and you had to include four years of current,prior, and/or future financial information. In addition, there is a $850 application fee due to the IRS for the form.
The IRS has just issued a simplified Form 1023-EZ application for “small” charities. A small charity must meet all of the following requirements, among others:
- Have less than $50,000 in annual gross receipts for each of the last three tax years.
- Project to have less than $50,000 in annual gross receipts for each of the next three tax years.
- Currently have total assets that are less than $250,000.
If a small charity meets all of these requirements, they can file the three page Form 1023-EZ. The form must be electronically filed at www.pay.gov, and the user fee is only $400. If an organization does not meet these requirements, they fall under the old Form 1023 filing rules.
Please note that if you want to form a non-profit organization that is not a charitable organization, such as a fraternal lodge, business league, or a social club, you still must file the 19 page Form 1024. Payments to such non-profit organizations do not qualify as charitable contributions, but may qualify as business deductions.
We can help you navigate the rules for setting up non-profit organizations and for annual financial audit and tax compliance. If you have any questions about these rules, please contact Andrew Ross, CPA at Bedard, Kurowicki & Co., CPA’s at (908) 782-7900 or visit www.bkc-cpa.com.