Nonprofit Tax-Exemption Approvals Double, Thanks to Simplified Form

The Internal Revenue Service approved 94,365 applications from organizations seeking 501(c)(3) designations in fiscal year 2014, more than double the number approved in the previous two years.

The one-year jump was due to the introduction of an alternative, three-page electronic version of the 26-page form 1023, the IRS said in its 2014 Data Book, an annual report released Tuesday. The electronic option, 1023-EZ, first became available in July 2014 and provides a streamlined way for organizations with annual gross receipts of less than $50,000 to apply for tax-exempt status.

Tamera Ripperda, director of the IRS exempt-organizations division, told attendees at a nonprofit-tax conference earlier this month that the short forms have proved popular. In April 2014, the division had a backlog of 74,000 applications, 55,000 of which were more than 270 days old. From April to September last year, the agency reduced by 91 percent the inventory of applications pending at least 270 days.

The federal government’s fiscal year ends September 30.

In total, the IRS processed 117,525 applications for 501(c) status in 2014. The majority — totaling 100,032 — were for the 501(c)(3) designation. The agency approved 94,365 of them and rejected 67, with the balance withdrawn or disqualified for lack of information, among other things.

The IRS approved 37,946 applications for 501(c)(3) status in 2013; 45,029 applications in 2012; 49,677 applications in 2011; and 48,934 applications in 2010.

Bryan Pautsch, an accountant specializing in nonprofit tax and a partner at Sikich LLP, said that with the new electronic form, some small nonprofits can now receive a response from the IRS within a few weeks.

"It is all good news for the actual charities," Mr. Pautsch said. "The form 1023-EZ is a lot easier to use and will alleviate the IRS’s work because there is less information that is needed."

Critics of the short form have warned that its use will make it more difficult for the agency to screen out tax cheats. The longer form, they say, gives the IRS a better picture of a proposed nonprofit’s mission.

In its 2014 Data Book, IRS officials noted that 2014 marked the fourth consecutive year that the agency has had its budget reduced. Speaking at the nonprofit-tax conference Ms. Ripperda said that attrition has left the IRS exempt-organization division short-staffed. She entreated nonprofits to resist submitting extraneous information that would further stretch the staff’s capacity. Too often foundations send in lots of personal information about donors and grantees on their annual 990 form paperwork — information that the agency has to take pains to redact, she said.

"Please do not send in the kitchen sink with your 990 filings," she said. "We don’t want the private information and we don’t need the private information."

Alex Daniels contributed to this report.