Form 1023, Application for Tax Exempt ORG Status, Must Be Filed Electronically03 February 2020
In a Revenue Procedure and accompanying Information Release, IRS has announced that— effective on Jan. 31, 2020, but with a grace period until Apr. 30, 2020—Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, must be filed electronically. The Revenue Procedure also modifies a procedure with respect to Canadian charities.
Background. Form 1023 is the application used to apply for recognition of exemption as an entity described in Code Sec. 501(c)(3).
Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, is the short-form version of Form 1023. Effective July 1, 2014, IRS provided that Form 1023-EZ can only be filed electronically. (Rev Proc 2014-40, 2014-30 IRB; see IRS issues form, instructions and Revenue Procedure for simplified exempt org applications.
Rev Proc 2020-5, 2020-1 IRB 241, explains procedures for issuing determination letters on exempt status (in response to applications for recognition of exemption from Federal income tax, other than those subject to Rev Proc 2020-4, 2020-1 IRB 148 (relating to pension, profit-sharing, stock bonus, annuity, and employee stock ownership plans)), private foundation status, and other determinations related to exempt organizations.
Form 1023 must be filed electronically. Subject to a grace period (see “Effective date and grace period,” below) IRS has announced that Form 1023 must now be filed electronically.
The new Revenue Procedure modifies Rev Proc 2020-5 to set forth procedures for issuing determination letters in response to electronically submitted Form 1023 applications. Unless otherwise modified in the Revenue Procedure, the provisions of Rev Proc 2020-5 continue to apply. (Rev Proc 2020-8, Sec. 2)
Most of the changes merely apply procedures that Rev Proc 2020-5 provided with respect to the required electronic filing of Form 1023-EZ, to Form 1023. For example, Rev Proc 2020-5, Sec. 6.08(4) provides that when an application is not submitted within 27 months of the entity’s formation, the entity will be recognized as tax exempt from the postmark date of its application or the submission date of its Form 1023-EZ, as applicable. The new Revenue Procedure changes the above italic language to “or the electronic submission date of its Form 1023 or Form 1023-EZ.” (Rev Proc 2020-8, Sec. 3.05)
The following change is unique to Form 1023. The first paragraph of Rev Proc 2020-5, Sec. 4.09(1) provides procedures for requesting expedited handling of a determination letter request. The procedures that had been in that paragraph have now been amended so that they apply except for a request with respect to a Form 1023. Under the new procedure with respect to a Form 1023, a request for expedited handling must be indicated on the form and a supporting written statement must be submitted as an attachment with the completed application. (Rev Proc 2020-8, Sec. 3.03)
IRS expects the electronic Form 1023 benefits to mirror those realized when Form 1023-EZ went online in 2014. IRS statistics show the 1023-EZ improved application processing time for both the Form 1023 and 1023-EZ while maintaining similar approval and rejection rates between the two forms. (IR 2020-25)
The required user fee for Form 1023 will remain $600 for 2020. Applicants must pay the fee through www.pay.gov when submitting the form. Payment can be made directly from a bank account or by credit or debit card. (IR 2020-25)
Canadian charities. In accordance with the income tax treaty between the United States and Canada, and pursuant to a mutual arrangement between the competent authorities of the two countries, Canadian registered charities are automatically recognized as exempt under Code Sec. 501(c)(3) without filing an application for exemption. (Notice 99-47, 1999-2 CB 391) The Revenue Procedure provides that no user fee is required when a Canadian registered charity submits a written request to be listed in Tax Exempt Organization Search database for organizations eligible to receive tax-deductible charitable contributions (Pub. 78 data), or for a determination on its private foundation status. Previously, Rev Proc 2020-5, Appendix A, Paragraph (4) provided that Form 1023 served as that written request, but it does not serve that purpose any longer. (Rev Proc 2020-8, Sec. 3.09)
Effective date and grace period. The new rules are effective on Jan. 31, 2020. However, IRS provides the following grace period: IRS will accept for processing a completed paper Form 1023 accompanied by the correct user fee, without applying the modifications of the Revenue Procedure, if the submission of the Form 1023 is postmarked on or before April 30, 2020. (Rev Proc 2020-8, Sec. 5 and Rev Proc 2020-8, Sec. 6)