Greetings and welcome to the File Error-Free Form 1023-EZ Conference Call. I would now like to turn the conference over to your host, IRS representative, Dan: . Dan: Welcome to the IRS webinar on Applying for Exemption using Form 1023-EZ. I'm Dan: , and I'm from the IRS Exempt Organizations Office. Today you'll learn who can use Form 1023-EZ to apply for tax exemption, and how to submit an error-free form. First, we'll compare Form 1023, the full application for recognition of exemption under Section 501(c)(3) to Form 1023-EZ the streamlined application. Then I'll explain who can use the EZ form. Finally, we'll go over how to complete and submit it. Let's start by meeting somebody who just started a small charity. Rachel: : Hi, I'm Rachel: . I'm starting a food bank charity. It's a small charity that I hope will do big things. I want to apply for tax exempt status. I heard there's a streamlined application for that. I'm not sure if I should file it or the full form. Can you help? Dan: Sure and congratulations on starting a food bank. Rachel: : Thanks.

Form 1023 looks long and the 1023-EZ is only a few pages and cheaper. I like that. Dan: First, let's talk about what the forms have in common. I'll call the Form 1023 the 1023, and the Form 1023-EZ the EZ. These are the only forms you can use to apply for a 501(c)(3) status. If you file them within 27 months of forming your charity, IRS will generally grant 501(c)(3) status effective as of the formation date, assuming it otherwise qualifies. If you don't submit form within 27 months, the effective date of the 501(c)(3) status will be the application date. You must file the forms electronically via pay.gov and pay the user fee electronically. We don't accept paper submissions of either application. You can pay directly from your bank account or by credit or debit card. Rachel: :What else do the forms have in common? Dan: Regardless of which application form you use, an organization seeking 501(c)(3) status must be organized and operated exclusively for a 501(c)(3) purpose. And none of its net earnings can enter to any private shareholder or individual. 501(c)(3) organizations are also restricted from engaging in political campaign intervention and limited in the amount of legislative or lobbying activities they may conduct. Basically, a 501(c)(3) organization can't operate for the benefit of designated individuals or people who created the organization. The IRS webpage IRS.gov/charities has resources that can help you learn more about the exemption requirements for a 501(c)(3)

organization. Rachel: How are the forms different? Dan: The main differences are, who can file each form, the information that you must submit, and the length of time it takes the IRS to process the forms and the user fee. Any organization applying for 501(c)(3) status can use the Form 1023.

To use the EZ, an organization must meet certain eligibility requirement. The 1023 requires attachment, schedules and detailed information about organizations that often have complex activities. You must include copies of organizing documents, financial information, a detailed description of activities and more. The EZ is just 3 pages. After submitting a 1023, an organization can generally expect the IRS to contact them within 180 days from the submission date. If you meet certain criteria, you may request expedited processing. An organization submitting an EZ can expect to be contacted within 90 days of submitting the EZ. The EZ is not eligible for expedited processing. Finally, the 1023's user fee is currently $600 and the EZ's user fee is $275. Rachel: So, what's required for an EZ? Dan: The EZ is designed for small organizations. You need to provide the same information for a 1023, but you don't include any attachments to the EZ. Instead, you include a brief description of your mission or most significant activities. And you must attest to having an organizing document and certain financial information. Rachel: How do I know if I'm eligible to file the EZ? Dan: The EZ instructions include an eligibility worksheet. It's very important that you complete this worksheet, which has 30 questions, before starting the EZ application. If you answer yes to any question on the worksheet, you can't use the EZ. It's important to note that submitting the EZ application doesn't guarantee exemption will be recognized. We closed over 50,000 EZ applications in fiscal year 2020, and more than 12% were rejected. Rachel: If the application is rejected, does that mean the charity can't be tax exempt? Dan: No, if your EZ application is rejected or if you answer yes to any of the EZ worksheet questions, you can apply using the 1023. Rachel: Can you tell me about the eligibility worksheet? Dan: The first three questions on the worksheet address financial threshold. If your gross receipts are expected to exceed $50,000 in the next three years, if your gross receipts exceeded $50,000 in any of the past three years, or if your total assets have a fair market value in excess of $250,000, you can't use the EZ. Rachel: What's included in gross receipts and total assets? Dan: Gross receipts are the total amounts your organization received from all sources during its annual accounting period before subtracting any expenses. Total assets include cash, accounts receivables, inventories, bonds, notes receivable, corporate stock, loans receivable, other investments, depreciable and depletable assets, land, buildings, equipment and any other assets. Rachel: Questions 4 and 5 are for foreign organizations and organizations with foreign mailing addresses. They can't file the EZ? Dan: That's right. You can't use the EZ if you're formed under the laws of a foreign country or have a mailing address in a foreign country. In other words, your organization must be formed under the law of the United States, its territories or its possessions, federally recognized Indian Tribal or Alaskan Native Governments or the District of Columbia. Question 6 says that applicants can't be successors to or controlled by an entity suspended, because it was designated as a terrorist organization.

Rachel: Those don't apply to me. Dan: Questions 7 through 11 involve the organization form or entity type. You must be organized as a corporation, unincorporated association, or trust. Sole proprietorships, partnerships and loosely affiliated groups of individuals aren't eligible for 501(c)(3) status. Even though LLCs are eligible to receive exemption under 501(c)(3), they can't use the EZ. Rachel: My charity is a nonprofit corporation in my state. Dan: You also can't be formed as a for-profit entity or be a successor to a for-profit entity. Your successor, if you substantially took over the assets or activities of a for-profit entity, converted or merged from a for-profit entity, or installed the same officers, directors or trustees as a for-profit entity that no longer exists. Rachel: I read that my charity can have been previously revoked or be a successor to previously revoked organization. Is that true? Dan: It is true. But that doesn't include an organization automatically revoked for ferried or] ph] file or required Form 990 series returned or notice for three consecutive years. Next, you must not be currently or previously recognized as tax-exempt under another section of 501(a). In other words, the EZ can't be used to establish a new subsection. Rachel: We're new, so that doesn't apply to us. Dan: Most of the other worksheet questions focus on the organization's activities. You can't be a church or a convention of churches. There's no definition of a church for tax purposes. However, the worksheet lists characteristics to help you determine if you are a church. Also, a church status generally requires a congregation that meets regularly for religious worship, and includes mosques, temples, synagogues, and other forms of religious organization. Rachel: We're not a church, and we're not a school, which is next on the worksheet. Tell me a little about school?

Dan: A school, college or university can't apply on the EZ. An organization is a school if it presents for more instruction as its primary function has a regularly scheduled curriculum as a regular faculty of qualified teachers, as a regularly enrolled student body, and has a place where educational activities are regularly carried on. Schools include primary, secondary, preparatory high schools, colleges and universities. It doesn't include organizations engaged in both educational and non-educational activities, unless the non-educational activities are incidental to the educational activity. Rachel: What about hospitals? Dan: You can't use the EZ, if you're a hospital or medical research organization, whose principal purpose is providing medical or hospital care, or medical education or research. Medical care includes treatment of any physical or mental disability or condition, either inpatient or outpatient. And medical research organizations principal purpose is the direct, continuous and active conduct of medical research in conjunction with the hospital. The hospital with which the organization is affiliated must be described in Section 501(c)(3), a federal hospital or an instrumentality of a governmental unit, such as a municipal hospital. You also can't use the EZ, if you're a hospital organization described in Section 501(r). Rachel: What are those? Dan: An organization is a hospital organization described in Section 501(r), if it operates a facility that's required by a state to be licensed, registered or similarly recognized as a hospital. These organizations are subject to the Affordable Care Act requirement. Rachel: The worksheet as we can't use the EZ, if we're an agricultural research organization, what's that? Dan: An agricultural research organization is directly engaged in the continuous active conduct of agricultural research in conjunction with a land-grant college or university or a non-land-grant college of agriculture. Rachel: I see that cooperative hospitals service organizations under Section 501(e) aren't eligible to file the EZ, what are those? Dan: A 501(e) hospital service organization is organized and operated on a cooperative basis to provide at section 501(c)(3) hospital members services such as data processing, purchasing and warehousing, worksheet item 16 in the EZ instructions with the specified services. You also can't use the EZ, if you're a cooperative service hospital organization of operating educational organizations under Section 501(f). This type of organization is organized and operated to provide investment services to its members, who must be organizations described in Section 170(b)(1)(A)(ii) or (iv) that are tax-exempt under Section 501(a) or whose income is excluded from taxation under Section 115. Rachel: What is the qualified charitable risk pool? Dan: That's an organization that is organized and operated to pool insurable risk of it Section 501(c)(3) members, not including risk related to medical malpractice, and to provide information to its members about loss control and risk management. Rachel: Are there any other rules for using the EZ? Dan: You can't use the EZ if requesting classification as a supporting organization under Section 509(a)(3), which describes organizations that have established certain relationships in support of public charities described in Section 509(a)(1)

or 509(a)(2). Rachel: The worksheet also says our substantial purpose can't be assisting individuals through credit counseling activities. What are those activities? Dan: These activities involve educating consumers on budgeting, personal finance, financial literacy, mortgage foreclosure assistance, or other consumer credit areas. Organizations also can use the EZ, if they invest five percent or more of their assets in securities or funds that aren't publicly traded. They can participate or intend to participate in partnerships, which they share losses with partners other than 501(c)(3) organization. Rachel: That doesn't apply to us. We also don't plan to sell carbon credits or carbon offsets or be a health maintenance organization, or accountable care organization. Dan: You also can maintain or intend to maintain donor advised funds. Rachel: What's that? Dan: A donor advised fund is generally a fund or account that the organization owns and controls, but it's separately identified by donor contributions and the donor or their designee has or expects to have a say in how the amounts in the fund are distributed or invested. Rachel: The next 2 items are about foundation classification. Dan: You can't use the EZ, if you're organized and operated exclusively for testing for public safety in requesting foundation classification under Section 509(a)(4) generally these organizations test consumer products to determine if they're safe for the public's use. You also must not request classification as a private operating foundation, which requires an organization to meet certain tests described on the 1023. You can find more information on private operating foundation rules on IRS.gov. Rachel: Questions 29 and 30 are directed toward organizations whose tax-exempt status as an automatically revoked, because they didn't file their annual 990 return for three consecutive years. What are the rules for the EZ? Dan: Revenue procedure 2014-11 as the procedures for organizations seeking reinstatement of tax-exempt status after being auto revoked, only organizations applying for reinstatement under Section 4 or 7 of the revenue procedure may use the EZ. For Section 7, simply check the box agreeing to reinstatement as of the date you're submitting the EZ. If you're seeking reinstatement retroactive to the date of your revocation, you must satisfy the additional requirements under Section 4. You must have been eligible to file either a 990-EZ or 990-N for each of the three consecutive years you've failed to file. You can't have previously been automatically revoked for not filing, and you must submit the EZ by 15 months after the date of your revocation letter, or the date the IRS posted your name on the revocation list on tax-exempt organization search, whichever is later. Also, you can't use the EZ to apply for reinstatement, if you're changing your foundation classification from the classification you had when your exempt status was revoked. Only organizations that want the same foundation classification may use the EZ to apply for reinstatement. For example, an organization classified under Section 509(a)(2) when it was automatically revoked, must request 509(a)(2) classification when seeking retroactive reinstatement on the EZ or the EZ will be rejected. You must use the 1023 to request a change in foundation classification with reinstatement. You also can use the EZ to apply for retroactive reinstatement of exemption under revenue procedure 2014-11 Section 5 or 6. Rachel: I answered no to all the questions on the eligibility worksheet. Can I use the EZ? Dan: Yes, but we urge you to read the entire EZ instructions before completing the form, if you can reduce errors are EZ is less likely to be rejected. Let's look at the form now. The first step to filing the EZ online is to register for an account on pay.gov. You can go directly to pay.gov or go to IRS.gov/charities and click on applying for tax-exempt status, and then Form 1023-EZ. Click the link for pay.gov, then create a pay.gov account and sign in. Once you're signed in under Form 1023-EZ in the search bar, then click continue to form. You must attach that you've completed the eligibility worksheet are eligible to apply using the EZ and understand the requirements to be exempt under Section 501(c)(3). Rachel: I see Part I of the EZ gathers basic information about the organization, name, address, employer identification number of fiscal year end? Dan: You can't apply for exemption without an EIN and make sure that the name entered on the EZ matches the organizing document exactly. For more information on organizational structure and organizing documents like organization or incorporation to the EZ instructions in Publication 557. Rachel: I see Part II focuses on organizational structure in the 501(c)(3) organizational tests? Dan: The first 4 questions are about your organizational structure, organizational document information date, only corporations, unincorporated associations, and trusts can apply on the EZ. Questions 5, 6 and 7, discuss the organizational test, which requires that the organizing document limit its purposes to those described in Section 501(c)(3) and not expressly empower the organization to engage other than in substantially in activities that don't further 501(c)(3) purposes. Also, assets must be dedicated to 501(c)(3) purposes upon the organization's dissolution. These questions are attestations. You won't submit your supporting documents unless we ask for them when reviewing your application. You're responsible for understanding the information you're attesting to.

Rachel: The Your Specific Activities section seems straightforward. Dan: It is. Here, the EZ focuses on the organization's activities. Your organization meets the operational test, if your activities show that it is operating exclusively for 501(c)(3) purposes. In question 1, Part III, you must describe your mission or most significant activities in up to 250 characters. The EZ instructions give examples of activities or missions that further 501(c)(3) purposes and those that don't. Rachel: Question 2 asks for an NTEE code, what's that? Dan: An NTEE code is a three character series of letters and numbers that describe an organization's type. Enter the NTEE code that best describes your organization from the list in the EZ instructions. Note that not all NTEE codes in the list necessarily correspond to a 501(c)(3) purpose. Question 3 addresses the 501(c)(3) purpose, for which you're organized and operated exclusively to further. Check all the purposes that apply to your organization. Rachel: Question 4 is an attestation on activities that don't further 501(c)(3) purposes. What do I need to know here? Dan: These are the other requirements for exemption under Section 501(c)(3) that you must meet, including not supporting or opposing political candidate and not furthering non-exempt purposes more than insubstantially. Before you attest that you haven't and won't conduct these activities, you may want to review the Form 1023-EZ instructions. Rachel: I see questions 5 through 12 in Part III are yes/no questions that address whether an organization will undertake activities, such as attempting to influence legislation, donating funds to pay expenses for the individuals in conducting activities or assisting individuals or organizations outside the United States. Right now, these don't apply to us. Dan: Part IV of the EZ addresses your foundation classification.

This is an important designation for every 501(c)(3) organization. So before you select the foundation classification, read the EZ instruction. This is an area where it's easy to select the wrong classification, which can have negative consequences to your organization, such as limitations on donations and excise taxes. The two main foundation classifications are public charities and private foundation. A public charity has a broad base of support, while a private foundation user receives its support from a few donors. Again, really think about your selection.

If you want to change your foundation classification after receiving exemption, you must submit Form 8940 Request for Miscellaneous Determination and pay a user fee. Rachel: Good to know. Dan: Part V only applies to organizations requesting reinstatement of exemption after being automatically revoked for failure to file 990 annual returns or notices for three consecutive years. Not all automatic revoked organizations can use the EZ to apply for exemption reinstatement. Worksheet questions 29 and 30, address automatic revoked organizations applying for reinstatement. If an organization is applying for reinstatement and changing its foundation classification or applying for retroactive reinstatement of exemption under Revenue Procedure 2014-11 Section 5 or 6 can't use the EZ and must file the 1023. Rachel: Looks like the last part of the form is the signature. Dan: Make sure the signer is an officer or director or a trustee of your organization. The signer is declaring under penalties of perjury, that they're authorized to sign the application that they've examined the application, and then it's true, correct and complete to the best of their knowledge. After this part, you'll pay the user fee and submit the application. The EZ will be rejected if your user fee payment isn't paid due to insufficient funds, or credit or debit card declination. Rachel: Is there anything else I should know? Dan: Beyond eligibility and qualification issues, you must make sure that the information in the EZ is correct. For example, some entries that may reject the EZ are an incorrect TIN or an inaccurate formation date that we can't determine based on our records or research. So, if your application is incomplete or not completed correctly, it may be rejected. Or you may be contacted for additional information. The IRS also selects a specifically valid random sample of applications for predetermination reviews, which may result in requests for additional information. Rachel: I'll make sure we will reply to any information requests. Do you have any final tip? Dan: The Charities is a nonprofit section of IRS.gov, has a wealth of information for tax-exempt organization. It offers tips on applying, annual reporting, and how to stay exempt as well as educational resources and guides, forms and instructions and many other topics. You can use Tax Exempt Organization Search, it's abbreviated TEOS, to find several bits of information. You can identify other organizations eligible to receive tax deductible contributions, automatically revoke the organizations, determination letters issued after January 1, 2014, Form 990 series returns, and organizations that filed Form 990 in e-Postcard. Finally, you can visit StayExempt.IRS.gov. This is an educational site IRS created for 501(c)(3) organizations. It's for new and existing organizations, and includes news, videos and tutorials. It also has workshops on subjects such as applying for Section 501(c)(3) status, the lifecycle of an exempt organization, maintaining 501(c)(3) status, Form 990 overview, required disclosures, foundation classification and more.

Rachel: I'll be sure to check those out. Thank you. Dan: That's all we have today. For more information, visit IRS.gov. Thanks for attending the webinar on Form 1023-EZ and good luck with your organization. Operator This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.