Nonprofit status in 30 days or less?  Really?

Yes, it can be done! On July 1, 2014, the Internal Revenue Service released a streamlined application for Recognition of Exemption (501c3, nonprofit status).  Prior to the release of this new process, the only application (and method for applying) was filing Form 1023, consisting of a 31 page application and 38 pages of instructions. The supporting documents include the appropriate schedule(s), a comprehensive narrative description of activities, projected revenues and expenses, bylaws and organizing document (articles of incorporation containing specific IRS language, conflict of interest policy and dissolution clause).   Under certain conditions, we now have the option of filing the Streamline 1023 or the “long-form” 1023.

What is the Streamline Package and how does it work?

The Streamline process is a simplified application form and 20 pages of instructions that certain types of organizations may use to apply for tax-exempt status.

How is the application filed?

It must be filed online.  (The long form 1023 can only be filed as a paper document).  The applicant must first set-up a payment method on a separate website, enter a credit card, pay the $275 application fee up-front and then file the form.

Why did the IRS create the Streamline procedure?

The newly appointed IRS commissioner, John Koskinen stated, “The change will allow the IRS to speed the approval process for smaller groups and free up resources to review larger, more complex organizations while reducing the application backlog”.

The IRS has stated there is a backlog of over 60,000 applications waiting to be assigned or reviewed, with many pending for 9 months or more. The reality is that the only way the IRS can work through the backlog with the same budget and staff is to change the application process.

What are the advantages of Streamline to the IRS?

Instead of having an examiner review a 50+ page packet (Form 1023 with schedules and attachments), with the Streamline form, the IRS is requiring minimal information up-front, but reserves the right to “request additional information” from applicants using this process and has stated they will focus their attention on “back-end” compliance. In other words, they will use a different set of filters to make determinations on Streamline applications (more on that below).

What are the advantages of using Streamline to me?

If your organization qualifies, in most cases we can obtain a 501c3 approval in 30 days, or less.

What kinds of organizations qualify for the Streamline procedure?

Only certain organizations are eligible. Generally, smaller charitable organizations with modest financial projections.  To determine eligibility, the applicant must complete an Eligibility Worksheet (7 pages).

What kinds of organizations  are prohibited from using the Streamline application process?

• Organizations that will take in gifts, grants and contributions from all sources greater than $50,000 in any of the next 3 years.
• Organizations with assets (buildings, land, equipment, inventories, investments) greater than $250,000.
• Organizations with mailing addresses outside the U.S.
• Organizations that were previously revoked.
• Successor Organizations.
• Churches.
• Organizations applying as a School, College or University.
• Hospitals or Medical Research companies.
• Organizations primarily focused on or funded with investments.
• Supporting Organizations.
• Organizations providing credit counseling, budgeting assistance, personal finance or financial literacy training, mortgage or foreclosure assistance or consumer credit areas.
• Organizations that test products for public safety.
• Organizations formed as LLC’s.
• Organizations required to file Form 1024.
• Various other obscure and rare categories.

Do I still need a nonprofit corporation to apply for tax-exempt status?

In almost all cases, an organizing document (nonprofit articles of incorporation) are required.  Only certain types of corporations, unincorporated associations and trusts are eligible for tax-exempt status under section 501c3 of the code.  Your organizing document must limit your purposes to those described (and allowed) under section 501c3.  The organizing  document must include a clause stating, in part, that no part of the net earnings of the corporation shall inure to the benefit of, or be distributable to its members, trustees, officers or other private persons.  Additionally, the organizing document must include a dissolution clause.  What we have found, working with thousands of nonprofit organizations is the majority of self-filed articles of  incorporation are missing some or all of the required IRS language.  

What “due diligence” questions does the IRS ask in the Streamline process?

The applicant is required to provide a minimal amount of information.  Applicants are asked a series of “check box questions” that are written in confusing IRS language. Applicants are asked if they have organizing documents (articles of incorporation). Applicants are also required to determine and enter the correct 3 digit, NTEE Code.  The codes are organized by general categories (for example “Education”) and broken down into specific types (for example, code B02, Management & Technical Assistance). The code entered tells the IRS what type of organization applicants are operating or planning to start.

The applicant attests to this statement: “under the penalties of perjury that I am authorized to sign this application on behalf of the above organization and that I have examined this application and to the best of my knowledge it is true, correct and complete.”

Will the IRS ask additional questions after my application is submitted?

The instructions state the IRS reserves the right to “request additional information”.  Tax-exempt status is an honor and privilege only granted under rigorous examination.  The tax code has not changed, nor does Congress or the public want the IRS to grant tax-exempt status to organizations that do not qualify under the code or are promoting or supporting terrorism or are trying to avoid paying taxes or commit tax fraud.

Our experience has shown us what type of questions the IRS will ask in certain situations. For example, if the organization has a foreign (non-U.S.) agenda, we know the IRS generally will ask what the organization has done or is doing to comply with anti-terrorism requirements such as OFAC (Office of Financial Asset Control).  The mission of the IRS is to apply and enforce the laws contained in the tax code.

As discussed, the Streamline process asks if the applicant has set-up a corporation and attest that the articles of incorporation contain the IRS required language.  It is likely the IRS will ask for copies of the organizing document and bylaws as it pertains to the request for additional information.  (In the long form application process, those documents are required to be submitted up-front for IRS review).

How can Non Profit Advisor Group help me?

Our Streamline Basic and Streamline Plus packages are designed to do most of the work for you.  We'll chat on the phone and make sure your agenda and financial projections qualify for the Streamline process.   If you need a corporation, we'll file it for you and, of course, it will have all of the IRS required language.   If you already have a nonprofit corporation, we'll review your articles.   Should your articles need an amendment because they are missing some or all of the IRS required language,  we'll assist you in getting them amended.   Once your articles are ready, we'll prepare the required documents and submit them to the IRS.  We'll also complete your bylaws, provide on going assistance and create a master electronic file of all your documents.   Should you receive an inquiry from the IRS about your application, as IRS licensed tax professionals, we'll work with you to develop the answers and represent your organization's application before the IRS.

What if my organization does not qualify for Streamline?

No problem!  That is why we have our Signature Packages.  They are intended for organizations wanting tax-exempt status that don't qualify for Streamline.  Click below to see our Packages and Pricing.

Have Questions?  Speak with one of our experts.