Streamlined EO Application Must Go, Group Says

A short and simple IRS form used by groups seeking tax-exempt status as charitable organizations should be replaced by a new version to prevent ineligible organizations from obtaining exemption, according to a national network of nonprofits.

Almost all organizations that submit Form 1023-EZ, “Streamlined Application for Recognition of Exemption Under Section 501(c)(3) [2] of the Internal Revenue Code,” are granted exemption by the IRS, regardless of eligibility, David L. Thompson of the National Council of Nonprofits said in a January 11 letter to the IRS [3].

As a result, the erroneous approval rate for 2019 was 46 percent [4], wrote Thompson, citing a Taxpayer Advocate Service report. He was responding to an IRS request [5] for comments on exempt organization forms and schedules.

“Quite frankly, the form fails to provide adequate information to ensure that only eligible organizations attain tax-exempt status and the privilege of receiving tax-deductible donations,” Thompson said.