The Internal Revenue Service (IRS) had a rough time last month – And it was not even April! (Or February. Or October. Or March. Well, you get the idea.)
In an attempt to start fresh at the mid-year point, the IRS revealed its new Form 1023-EZ, the “Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.” This “EZ” form is a short three pages – a whole twenty-three pages shorter than Form 1023. Essentially, this new form is an attempt at simplifying the tax-exempt status process for smaller groups.
IRS Commissioner and multimillionaire philanthropist John Koskinen said of the new form:
This is a common-sense approach that will help reduce lengthy processing delays for small tax-exempt groups and ultimately larger organizations as well… The change cuts paperwork for these charitable groups and speeds application processing so they can focus on their important work.
Koskinen continues to say that the old process created “needlessly long delays for groups,” regardless if they are “a small soccer or gardening club or a major research organization.” In the past, such delays have taken up to nine months – multiply that by the 60,000 applications in the IRS backlog, and that’s 45,000 years of delays across all groups.
As Koskinen indicates, only smaller organizations are currently eligible for filing using the EZ form. In particular, only organizations “with gross receipts of $50,000 or less” and “assets of $250,000 or less” can file using the new form (additionally, schools, hospitals, private operating foundations, and some other groups are ineligible). According to IRS estimates, 70 percent of applicants qualify to use the new form.
However, despite calls for this streamlined process from the rather vocal segment of the nonprofit community, some have already criticized the IRS’s work. As San Francisco Gate’s Kathleen Pender points out, this criticism has come from different angles. Tim Delaney, the president and chief executive of the National Council of Nonprofits has said the form goes “too far too fast.” In a separate piece for The Hill, Delaney argued:
The existing Form 1023 is cumbersome and in need of streamlining to ease the burden on new applicants and IRS staff. But the IRS, rather than ignoring the united voices of state charity regulators, the regulated charitable community, and seasoned legal practitioners who oppose the radical proposed EZ form, should invite these stakeholders in for quality input. This reasoned approach would fix the real issue and avoid the current path that will erode public trust, erase IRS accountability, and increase taxpayer burdens.
Others have indicated that the new form places the burden of nonprofit screening on the states. Agreeing with this critique, the National Association of State Charity Officials has argued one step further that the new form “invites abuse and results in overall regulatory inefficiency.”
In light of the host of issues facing the IRS today – document leaks, the alleged intensive scrutiny applied to certain political organizations, and alleged individual harassment – perhaps the switch to shorter forms requiring less information mitigates concerns brought about by the marriage of the regulatory state with philanthropy. (It is of note that these current concerns with the IRS are neither partisan nor novel.)
Tim Delaney concluded in The Hill, “Handing out charitable status like candy at Halloween is a bad idea.” For some reason the analogy of “charitable status” as “candy” leaves a bad taste in my mouth.