IRS Releases Draft of Streamlined Application for Tax-Exempt Status

IRS has released Draft Form 1023-EZ (Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code) and its draft instructions. The 2-page Form 1023-EZ is a shorter version of the regular Form 1023 that may be used if an organization meets specific criteria (determined by completing the Form 1023-EZ Eligibility Worksheet).

The new form has been created as a method for smaller organizations to apply for exemption under Code Sec. 501(c)(3). Form 1023-EZ (like Form 1023) provides IRS with information to determine the applicant’s exempt status and private foundation status. Upon acceptance of the form, IRS will issue a letter that provides written assurance about the organization’s tax-exempt status and its qualification to receive tax-deductible charitable contributions.

Organizations that would normally file Form 1023 will be able to file Form 1023-EZ if they meet the following requirements: no more than $200,000 of projected annual gross receipts in any of the next three years; annual gross receipts of not more than $200,000 in any of the past two years; total assets not in excess of $500,000.

An organization is a tax-exempt organization under Code Sec. 501(c)(3) if it is organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals. With limited exceptions, an organization must notify IRS that it is applying for Code Sec. 501(c)(3) status. To obtain recognition of exemption from federal income tax under Code Sec. 501(c)(3), an organization must generally file the 26-page Form 1023 (Application of Exemption Under Section 501(c)(3) of the Internal Revenue Code).

The Form 1023-EZ Instructions remind taxpayers about key requirements for an organization to be exempt from federal income tax under Code Sec. 501(c)(3). It must be organized and operated exclusively for one or more exempt purposes. Further, an organization doesn’t qualify for Code Sec. 501(c)(3) status if a substantial part of its activities is attempting to influence legislation. In addition, all Code Sect. 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating or intervening in any political campaign on behalf of (or in opposition to) any candidate for elective public office; although non-partisan voter education activities (including public forums and voter education guides) are allowed.

IRA Rollovers to be Limited

A law limits the number of IRA rollovers that can be made in any 1-year period to one. Recently, the Tax Court held that the limit applies not to each separate IRA an individual may own, but to all of his or her IRAs. It reached this result even though the IRS had indicated in proposed regulations and tax publications that the limit applies to each IRA. Thus, an individual with three IRAs could make three rollovers in a 1-year period under the IRS guidance but only one under the Tax Court decision.

After considering the matter, the IRS has announced that it will adopt the more restrictive view of the Tax Court. However, the new rule won’t apply to any rollover that involves a distribution occurring before 2015.

The IRS emphasized that an IRA owner will continue to be able to transfer funds from one IRA trustee directly to another as frequently desired. Such transfers are not rollovers and thus are not subject to the limit.