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What happens if I use Form 1023-EZ and bring in more than $50,000?

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What happens if I use Form 1023-EZ and bring in more than $50,000?

I understand that there is now a simplified Form 1023, called Form 1023-EZ, to use in applying to the IRS for 501(c)(3) charitable exempt status. It requires assets less than $250,000, and forecasted revenue less than $50,000 for the current year and the next two. What happens if I apply, get approved for 501(c)(3) status, and my actual revenues exceed $50,000 in one or more of those years? Will I have to then fill in a full Form 1023?  

The simple answer to your direct question is “No.”  There is no indication that the IRS would require a full Form 1023 filing if your income exceeds $50,000 in any of the three years.  But that would not be your primary concern.

The Form 1023-EZ has been broadly criticized because it doesn’t give the IRS much information to see if the applicant organization is really qualified for charitable exemption.  The IRS has said that it will spot check some of the 1023-EZ applicants after they have been operating a while to see that they are actually compliant with the rules.  It has already found a lot that are not.  It isn’t clear whether these are people who were gaming the system to get a quick exemption letter without showing what they actually plan to do, or whether they were merely uninformed about the requirements. 

The IRS has also said that a recognition letter may not be relied on by donors if it is based on “any inaccurate material information.”  If you get more than $50,000 in a year, you will have to file at least a Form 990-EZ and bring yourself to the attention of the IRS.  In either case, your organization will be on the IRS radar, and it could lose its exempt status entirely.

Remember too, you are signing the application under penalty of perjury.  If you have any expectation of more than $50,000 in revenue, you would be far wiser to file the full Form 1023 now.  Then if you live up to what you say you will do, when you get your exemption, you can be sure that it is good.

Tuesday, February 19, 2019

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