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After 1023-EZ approval, should charity alert IRS to revenue over $50,000?

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After 1023-EZ approval, should charity alert IRS to revenue over $50,000?

My small public charity has applied for and been approved for 501(c)(3) exemption via Form 1023-EZ.  In year 1 we raised less than $50,000. Expectations for year 2 have increased and we will likely be approximately $100,000.  Should I alert the IRS that our gross will likely be over $50,000 in years 2 and probably 3?  If yes, how?

There is no way to notify the IRS in advance that you might go over $50,000 in revenue in any of the first three years of your operations, even though you had to project that you wouldn’t get that much in order to file Form 1023-EZ to get your exemption.  You will notify them after the fact when you file a Form 990-EZ or a full Form 990 showing more than $50,000 income.

You may not have to file a 990-EZ even if you exceed $50,000 in year two.  The IRS allows you to use the 990-N electronic postcard if you average $60,000 or less for each of the first two years, and again for each of the first three years.  A slow start may not immediately force you into the 990-EZ range even if you do exceed $50,000.

The National Association of State Charity Officials has recently complained to the IRS again that the 1023-EZ “enables fraudulent activity that harms the public” because, among other things, it does not require copies of the governing documents or force the incorporators to face issues of finance, operations, fundraising, and investments.  Many others have been vocal in their criticism of the 1023-EZ form as well, but  the IRS has not indicated that it intends to revise or eliminate it in the foreseeable future.

Tuesday, December 12, 2023

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