In a previous blog post, we discussed the difference between the form 1023 and 1023-EZ. Form 1023 is a long form that requires extensive narrative concerning your organization such as, your whistle blower policy, dissolution clause, etc., and the 1023-EZ is the streamlined version that consists of checkboxes that rely on your trust that all of the information is accurate and accounted for.
All organizations are eligible to file using form 1023, but why are some strictly prohibited from using the 1023-EZ?
Often the circumstances revolve around the issue of charitable contribution. Form 1023 asks for proof of finances for certain types of organizations that have a substantial amount of money coming in a year. This is to protect the organization and the people within the organization of misuse of funds and corruption.
Organizations that are formed or conduct business outside of the United States are required to file the standard 1023 form due to tax risk issues. Organizations formed in foreign countries or that operate outside of the United States are normally not tax deductible as charitable contributions unless there is a treaty between that country and the United States, therefore, they must file the long form. The long form will help protect investors and clear up tax related issues.
Another reason that an organization may have to use the long 1023 form is because of its history with the IRS. For example, organizations that have been previously revoked must provide narrative of new documentation and procedures. Organizations that are successors of a for-profit entity must provide proof of their organizations not-for-profit procedures and how the two companies vary. Additionally, nonprofits that plan to enter into joint ventures, including partnerships or limited liability companies, must provide a description of any joint activities in which the organization will participate.
The extensive list below are those organizations that strictly must file using the regular Form 1023.
- Organizations with a projected annual gross receipt of more than $50,000 or that have exceeded $50,000 in the past three years
- Total assets included, if the fair market value exceeds $250,000
- Organizations with mailing addresses outside of the United States
- Those formed under the laws of a foreign country
- Organizations that are successors to, or controlled by, an entity suspended under Code section 501(p)
- Organizations that are not corporations, unincorporated associations, or trusts
- Organizations that are successors to a for-profit entity
- Organizations that were previously revoked or that are successors to a previously revoked organization
- Churches (or conventions or associations of churches), schools, colleges, or universities.
- Hospitals or medical research organizations.
- Organizations that have a substantial purpose providing assistance to individuals through credit counseling activities such as budgeting, personal finance, financial literacy, mortgage foreclosure assistance, or other consumer credit areas
- Organizations that participate, or intend to participate, in partnerships in which they share profits and losses with partners other than 501(c)(3) organizations
- Organizations that sell, or intend to sell, carbon credits or carbon offsets.
- Health Maintenance Organizations (HMOs).
- Accountable Care Organizations (ACOs) or organizations that engage in ACO activities
- Organizations that maintain, or intend to maintain, one or more donor advised funds
- Organizations that are organized and operated exclusively for testing for public safety and that are requesting a foundation classification under Code section 509(a)(4). (An example of this would be The Insurance Institute for Highway Safety. This type organization performs tests to reduce fatalities, injuries and property damage from vehicular crashes.)
- Private operating foundations
All organizations are able to use the long 1023 form when filing for tax-exempt status. Some nonprofits that are not required to use the lengthy form still opt for the regular 1023 for organizational purposes. No matter which form your nonprofit uses to gain tax exemption, you’ll want to make sure that all of the information is present, accurate and clearly stated so that there are no mishaps during the filing process.
If you want to learn more about the differences between the 1023 and 1023-EZ, check out our blog post, “The difference between a 1023 and 1023-EZ.”