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April 09, 2015

Critics Question IRS Shortcut for Small Nonprofit Applicants

The Internal Revenue Service's new short form for organizations applying for tax-exempt status is coming in for heavy criticism, including from large nonprofit umbrella groups, charity regulators, and tax lawyers, The New York Times writes. About 28,000 organizations have used the 2&frac;-page 1023-EZ form since it was introduced in July

The short form can be used by entities with annual incomes of less than $50,000 or assets of less than $250,000 and requires no additional documentation, unlike the 26-page standard application. The National Council of Nonprofits and the National Association of State Charity Officials say the 1023-EZ opens the door to fraud. Nina Olson, the chief advocate for taxpayers within the IRS, has said the form as implemented makes "a mockery of the IRS's significant oversight function." 

Tamera Ripperda, head of the agency's nonprofits unit, defended the new form, saying the IRS "underwent a thorough risk assessment" before introducing the 1023-EZ and that more closely vetting groups after they start operating and filing annual tax returns "is a better use of our resources" than investigating at the application stage.

Read a Chronicle of Philanthropy article about the impact of the new short form on IRS approval rates for nonprofit applicants.