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May nonprofit replace 1023-EZ with full Form 1023?

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May nonprofit replace 1023-EZ with full Form 1023?

If my startup nonprofit organization fills out a Form 1023-EZ to file for charitable recognition under section 501(c)(3) of the Tax Code, can we amend it to file a full Form 1023 proactively to avoid any problems?

I am not aware of any procedure by which you can proactively substitute a full Form 1023 for the 1023-EZ unless, perhaps, you withdraw the 1023-EZ before it is acted upon by the IRS.  Since the turn around on the 1023-EZ is very quick, often only a few weeks, a withdrawal might not even catch up with the application.

Most of the nonprofit world recognizes that the Form 1023-EZ is not a good form, does not give the IRS enough information on which to make a real judgment on the status of the applicant, and does not protect the public from scam applications.  The IRS is supposed to do a certain amount of follow-up on organizations recognized under the EZ process to assure that they actually qualify for exemption.  But it is clear that merely exceeding the anticipated $50,000 annual threshold limitation for gross receipts will not create a problem if you are audited.    

If your concern is only about bringing in more than you expected, I wouldn’t worry.  If you have a substantial concern that your planned activities aren’t really qualified charitable activities, you could start a new organization and file a full 1023 to obtain an assurance that you are okay.  If you are approved in the second startup, you could then merge the first startup into it and proceed with operating the second one. 

But if you filed in good faith and met the eligibility requirements without concern that you are a qualified charity, I would ride with what you submitted. You need to assure that you don’t do anything to jeopardize the (c)(3) status.  But you have to do that with either form.  How you actually operate, not what form you filed, will determine whether you continue to be exempt.

Tuesday, September 17, 2024

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