

Getting a nonprofit organization off the ground has always involved three steps:
The second step was, up until now, by far the most time-consuming and labor-intensive of the three steps. First, you had to fill out IRS Form 1023, a monster of an application form (for the text, go to www.irs.gov and type “Form 1023” in their search box) that required you to project your financial statements, donations, and other information for the first two to three years of your operations, attach all sorts of corporate documents and resolutions as “exhibits”, and describe all of your intended programs in exquisite detail.
Completing the form, and pulling together the information required by the form, took forever and a day. But then it got worse. Once you filed Form 1023 with the IRS, you had to wait upwards of 18 to 21 months to get IRS approval. If you made even one mistake on the form, the IRS kicked it back to you and you started the process all over again. Oh, and did I tell you about the $400 filing fee ($750 if you wanted “expedited service,” which required you to fill out yet another form)?
In July of this year, things got a little easier for nonprofit startups, with the IRS’ adoption of new Form 1023-EZ (go to www.irs.gov and type “Form 1023-EZ” in their search box), a streamlined application form that can be filed electronically. If you file it correctly, without a single mistake, and pay the $400 filing fee by credit card (sadly, that hasn’t gone away), you could – possibly – get IRS approval almost instantaneously.
What’s even better, Form 1023-EZ is truly streamlined. It is basically a questionnaire where you provide basic information about your nonprofit’s organizational structure (corporation or LLC), management personnel and charitable purpose. Most of the questions are “yes/no” and it’s fairly easy to figure out what the correct answers should be. I timed myself filling out the form for one of my nonprofit clients and it took all of 15 minutes (of course, I do this sorts of work for a living so give yourself at least a half-hour).
So should your organization file Form 1023-EZ today, so you can start pitching rich people for tax-deductible donations? Well, not so fast. As with all things the Government gives you, there are a number of conditions, reservations and “wait a minutes”.
First of all, not all nonprofit startups qualify to use Form 1023-EZ. The IRS requires you to fill out an “eligibility checklist” to use the form before you can actually fill it out online. And they have made the checklist very, very hard to find – searching for “Form1023-EZ eligibility checklist” on the IRS website will not get you there. To get to the checklist, you have to search for “Form 1023-EZ” on the IRS website, then download the “instructions” for Form 1023-EZ (not the form itself), then scroll down the instructions (on the right hand column) and click on the link for “Form EZ Eligibility Checklist”.
There are 26 questions on the checklist, the most important of which are:
If you answer “yes” to ANY of the 26 questions, you cannot use Form 1023-EZ, although you still may be able to obtain tax-exempt status by filing the full Form 1023. If you don’t understand any of the questions, or don’t know the answer, STOP – you will need help from an attorney or tax advisor.
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