Question: I know there is a relatively new and simplified Form 1023, called Form 1023-EZ, to use in applying to the IRS for 501(c)(3) 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 an organization files Form 1023-EZ, gets approved for 501(c)(3) status, and then its actual revenues exceed $50,000 in one or more of those years?
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Answer: In a sense, nothing happens, There is no indication that the IRS would require the organization to go back and file a full Form 1023 filing if its income actually exceeded $50,000 in any of the three years.
The Form 1023-EZ has been criticized because it is too short and does not provide the IRS with an adequate amount or level of information. The IRS does 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. 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.” An organization that takes in more than $50,000 in a year will have to file at least a Form 990-EZ, thereby bringing itself to the attention of the IRS. In a worst case scenario, the organization’s exempt status could be in jeopardy if the IRS concludes that a Form 1023 filing (either version) contained materially false information. Perhaps most importantly for nonprofit organizers, remember that you are signing the application under penalty of perjury. If you genuinely expect the organization will generate more than $50,000 in annual revenue, it would be prudent to file the full Form 1023 now.
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