Simplified Process to Gain Small Tax-Exempt Organizations Status

Help for Small Organizations Seeking Tax-Exempt Status

By Penny Millar, CPA, Partner

The IRS released a new, simplified application for organizations seeking tax-exempt status, Form 1023-EZ. Recognizing the backlog of more than 60,000 applications, most of which are small organizations, this new form will greatly speed up the approval process. The original application is 26 pages plus multiple attachments. The new application is only three pages long, consisting of contact information for officers and directors, yes/no questions concerning the organization, and a declaration and signature. There is no need to submit financial information, organization documents, or supplemental information. Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible.

The IRS believes as many as 70% of applicants will qualify for the simplified application. The application must be completed online by going to A fee of $400 is due with the application. Prior to submitting the 1023-EZ, all applicants must complete a seven-page questionnaire confirming eligibility for the shortened form. If you answer “Yes” to any of the questions, you are not eligible to apply for exemption using Form 1023-EZ, and you must use Form 1023.

If your organization was properly formed, and you meet the requirements of all non-profit organizations, the shortened application will enable you to receive tax-exempt status in a matter of weeks rather than months.

Alert for Trustees for Trusts with Investments


Application of 3.8% Net Investment Income Tax to Trust Income for 2013

By David P. Dillwood, CPA, Partner

The Affordable Care Act instituted a new 3.8% Net Investment Income Tax on the following types of income:

  • Interest
  • Dividends
  • Capital Gains
  • Passive Income (rental, partnerships, etc.)

For individual taxpayers, the net investment income tax threshold is $250,000 of AGI. For estates and trusts, the threshold is $11,950. Thus, for every trust with trust taxable income over $11,950, the trust will have to pay an additional 3.8% tax, to the extent there is net investment income reported on the 2013 Form 1041 in excess of $11,950.

There is a way to prevent or reduce this new tax. Trusts can reduce their taxable income by making distributions to the beneficiaries. In addition, trusts may include distributions to beneficiaries made within 65 days after the end of their reporting year. There is still time until Thursday March 6, 2014 to make a distribution to beneficiaries and eliminate the net investment income tax that would otherwise be payable by the trust.

If you think this may apply to a trust in which you are either a trustee or a beneficiary, please call us. We would be happy to help you determine how best to solve this problem.

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