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If charity approved on 1023-EZ seeks over $50,000, does it have to dissolve?

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If charity approved on 1023-EZ seeks over $50,000, does it have to dissolve?

I originally filed a Form 1023-EZ to seek recognition of charitable exemption, which the IRS has granted.  After adding additional board members, our vision has changed from the initial plan and we know that now we will be seeking funding that will exceed $50.000 a year. Do we need to dissolve this company with the state and start over with the long Form 1023?

No.  There is no reason to dissolve and start over, just because you might now receive more than $50,000 a year.  The IRS recognizes that some of the organizations that filed the 1023-EZ in the belief that they would not receive more than $50,000 a year may in fact raise more than that. The IRS also recognizes that just because you set higher goals doesn’t necessarily mean that you will be able to reach them.  They don’t want to have to process another application just because expectations may have changed.

If you do reach your new goals, you will have to file a Form 990-EZ or full Form 990 to report your income and expense for the year.  You won’t be able to file the Form 990-N “electronic postcard” to report that you still exist but haven’t raised more than $50,000 in the year.  You may jump to the attention of the IRS if you generate significantly more than $50,000, but it sounds like you would have a legitimate reason for the difference if they came to ask about it.

I would be more concerned if you had filed the 1023-EZ while knowing that you were going to seek more than $50,000 a year.  The EZ, like the full Form 1023, is filed under penalty of perjury and can be filed only by those who don’t expect to receive more than $50,000 a year for the first three years.  It sounds like your horizons expanded with the addition of new people to the board and that your original estimates did not make your EZ filing improper.

Tuesday, November 1, 2022

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