Should I use a 1023 or a 1023-EZ?

In order to become tax-exempt, an organization must file a Form 1023 or a 1023-EZ. In our previous blog “The difference between a 1023 and a 1023-EZ”, we discussed the difference between each. When filing a 1023, organizations must submit various legal documents and a narrative detailing the organization’s mission and programs, while organizations filing the 1023 EZ, simply check boxes to indicate those documents exist without having to submit them to the IRS.If you don’t know which form is best suited for your organization, you can keep reading to know more about the basics that will help in your decision. All companies and organizations have the choice to fill out Form 1023. Most organizations also have the choice to use Form 1023-EZ, with the exception of the following:

• 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.

• research organizations.

• Organizations that have as 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)

• Private operating foundations

Some organizations that are eligible to use a Form 1023-EZ may still opt to using the longer 1023 form. The chance to provide narrative and explanation can benefit those companies that may be participating in activities that are accepted by the IRS only when done properly. Some activities that are acceptable when done right are:

• Attempting to influence legislation

• Pay compensation to any of your officers, directors, or trustees

• Donate funds to or pay expenses for individuals

• Conduct activities or provide grants or other assistance to individuals or organizations outside of the United States

• Engaging in financial transactions (loans, payments, rents, etc.) with any of your officers, directors, or trustees, or any entities they own or control.

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