The Internal Revenue Service has a simplified process for non-profit organizations with annual gross receipts of less than $5,000.00 to apply for exemption under Section 501(c)(3) of the Internal Revenue Code. Just like any 501(c)(3), the first step is to create an Arizona nonprofit corporation. The organization must adopt Articles of Incorporation, which include language required by the Internal Revenue Service, and then file the Articles with the Arizona Corporation Commission. Once that has been accomplished, the organization then should obtain a federal Employment Identification Number from the IRS. Next, an authorized officer of the organization must complete the Form 1023-EZ Eligibility Worksheet. https://www.pay.gov/public/form/preview/pdf/62759871. The Worksheet consists of 29 yes or no questions. If the organization answers no to each question, it is eligible to file Form 1023-EZ. Any yes answer means a full Form 1023 needs to be filed. Once the organization determines that it is eligible, an authorized officer of the organization needs to create an account on http://www.pay.gov/. On http://www.pay.gov/, a 3-page interactive form must be completed and then submitted with an e-payment of a $275.00 filing fee. That is much simpler than the regular Form 1023, which is 12 pages with various required attachments and addenda and the application/user fees are $400.00 for organizations with gross receipts of less than $10,000 and $850.00 for organizations with gross receipts of more than $10,000.
Obviously, Form 1023-EZ is less difficult to complete and cheaper to file than Form 1023. It is important to note, however, that the IRS’s three main requirements for designation under Section 501(c)(3) are the same no matter which form an organization files. Those requirements are that the organization: (1) must be Organized – as a corporation whose organizational documents (i) expressly limit the organization’s activities and purposes to those described in Section 501(c)(3), (ii) do not expressly permit activities unrelated to those purposes, and (iii) permanently dedicate all of its assets to its exempt purposes; (2) must be Operated – in such a way that its activities further its exempt purposes and so that it (i) does not participate in any candidate’s political campaign, (ii) refrains from lobbying activities that are more than an insubstantial part of its total activities, (iii) ensures its earnings do not benefit any private shareholder or individual, (iv) does not operate for the benefit of any private interests, including those of its founder(s), realties, shareholders, etc., (v) does not operate primarily for the purpose of conducting a trade or business not related to its exempt purpose(s), and (vi) does not carry out any activities that are illegal or that violate fundamental public policy; and (3) have its Exempt Purpose or Purposes – specifically delineated in its organizational documents and must be limited to one or more of following exempt purposes: charitable, educational, religious, scientific, literary, fostering national or international sports competition, preventing cruelty to children or animals, and testing for public safety. If you have questions regarding Form 1023-EZ or would like assistance creating your non-profit organization, please give us a call.