The IRS requires all Forms 1023 (Applications for Recognition of Exemption Under 501(c)(3)) to be filed electronically through www.pay.gov as of January 31, 2020. While the electronic application asks for substantially similar information as the former paper form, there are a few procedural changes attorneys and other tax professionals will need to implement. Users will need to set up a user account in order to submit applications. Application submissions will be limited to a single PDF with all supporting documents, not to exceed 15 MB in size. Payment will only be accepted via ACH withdrawal or by debit or credit card, so those professionals accustomed to enclosing a firm or client check with the paper application will need to change their payment submission process as well.
As with the prior paper application process, applicants are required to file organizing documents with appropriate state entities and obtain an EIN prior to applying for tax exempt status. While applicants are limited to 5,000 characters to describe the organization’s detail activity description, they still have the option of including additional explanatory narratives and supplemental schedules with their application, as long as the total submission does not exceed 15 MB. Applicants whose additional documents exceed 15 MB will need to contact IRS Customer Accounts Services for submission assistance. Also new to the process is the requirement to select a National Taxonomy of Exempt Entities (NTEE) code to describe the organization’s primary purpose. Tax Professionals may want to familiarize themselves with the code categories in advance to facilitate client discussions and selection of the most appropriate NTEE code.
There is a 90 day grace period for paper applications in process, so any pending paper applications should be finalized and submitted as soon as possible in order to avoid rejection. Applications received after the grace period has ended will be rejected and returned to sender for resubmission electronically, which could significantly delay the process for applicants.
For more information, please contact Giselle Alexander in the Phoenix office at (602) 285-5046, or another attorney in the DW Tax practice group.