I understand that there is now a simplified Form 1023, called Form 1023-EZ, to use in applying to the IRS for 501(c)(3) charitable exempt status. It requires assets less than $250,000, and forecasted revenue less than $50,000 for the current year and the next two. What happens if I apply, get approved for 501(c)(3) status, and my actual revenues exceed $50,000 in one or more of those years? Will I have to then fill in a full Form 1023?
The simple answer to your direct question is “No.” There is no indication that the IRS would require a full Form 1023 filing if your income exceeds $50,000 in any of the three years. But that would not be your primary concern.
The Form 1023-EZ has been broadly criticized because it doesn’t give the IRS much information to see if the applicant organization is really qualified for charitable exemption. The IRS has said that it will spot check some of the 1023-EZ applicants after they have been operating a while to see that they are actually compliant with the rules. It has already found a lot that are not. It isn’t clear whether these are people who were gaming the system to get a quick exemption letter without showing what they actually plan to do, or whether they were merely uninformed about the requirements.
The IRS has also said that a recognition letter may not be relied on by donors if it is based on “any inaccurate material information.” If you get more than $50,000 in a year, you will have to file at least a Form 990-EZ and bring yourself to the attention of the IRS. In either case, your organization will be on the IRS radar, and it could lose its exempt status entirely.
Remember too, you are signing the application under penalty of perjury. If you have any expectation of more than $50,000 in revenue, you would be far wiser to file the full Form 1023 now. Then if you live up to what you say you will do, when you get your exemption, you can be sure that it is good.
Comments
If we file 1023-ez but bring in 50k after 3years? Do we file a 990? What do we do to stay compliant with IRS?
Yes. Simply file the correct Form 990 tax information return and you will be compliant. —Don Kramer
I am running a small charity (under $ 50,000 in revenue each year). I received the 501(c)(3) approval determnation letter in March 2016. Is the limit of $ 50000 removed after 3 years? If I raise $100,000 in 2020 and then in 2021 file the correct form, am I running any risk ?
There is technically no limit on the amount you can raise in each of the first three years, but you were asked to make a good faith estimate that you wouldn't raise more than that in any of the first three years when you filed the 1023-EZ. Whenever you generate significantly more than $50,000 in a year (the IRS has some averaging techniques available for the first three years), you have to file the appropriate Form 990 or 990-EZ. The only risk if the first reported number is hugely more than $50,000 for the year is that the IRS may be more likely to take a look at your organization to see if it is doing things correctly. —Don Kramer
Thank you for your Q&A sessions. I'm in the same boat, our organisation has made and is expected to make a little over 50k in 2021 our third year in operation and I've been confused on which form to file. Thank for your advise!
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