In mid-2014 the IRS premiered a short-form version of the application for new charities applying for 501(c)(3) tax-exempt status. The new application is a mere three pages long (as opposed to the full 31 page application) and will apply to nearly 70 percent of all new applicants. This is a common-sense approach that will help reduce lengthy processing delays for small tax-exempt groups and ultimately larger organizations as well, said IRS Commissioner John Koskinen. The change cuts paperwork for these charitable groups and speeds application processing so they can focus on their important work.”
Nonprofits such as schools and hospitals will continue to use the lengthier applications. In order to be eligible for the short form, the organization cannot:
O Project to have annual gross receipts of more than $50,000 in each of the next three years;
O Have had annual receipts of more than $50,000 in any of the prior three years;
O Have total assets whose fair market value exceeds $250,000; and
O Cannot maintain (or intend to have) any donor advised funds.
While the new streamlined application should make the application process easier, there are many other issues besides tax status that are important for the health and longevity of a new nonprofit organization. Before beginning the application process, new exempt entities should make sure to have a plan in place for board governance, risk management, conflicts of interest, fundraising and insurance issues. Each of these issues requires sound judgment, experience and forethought. The existence of the new streamlined 501(c)(3) application should not encourage new nonprofits to consider any shortcuts in the remainder of this essential planning process.