en An official website of the United States Government (NON-Prod - Development Environment)
Popular search terms:
Published: October 24, 2018   |   Last Updated: November 19, 2020

Form 1023-EZ Now Elicits Additional Information, But It’s Not Clear That IRS Reviewers Are Considering It

Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, introduced in the summer of 2014, has been in use for over four years. While I am in favor of a shortened form that smaller organizations can use to apply for recognition as an IRC § 501(c)(3) organization, I have always had concerns about Form 1023-EZ, as discussed in my 20152016, and 2017 Annual Reports to Congress (including a study in volume 2 of the 2015 report).

One of my main concerns has been that Form 1023-EZ does not elicit enough information to allow the IRS to make an informed determination about whether an organization qualifies for IRC § 501(c)(3) status. My concerns were heightened by our reviews of successful applicants’ articles of incorporation to ascertain whether the articles contained purpose and dissolution clauses as required by Treasury regulations, thereby conforming with the statutory organizational test for tax exempt status. It’s important to note that our reviews were limited to representative samples of applicants that are corporations and are in states that make articles of incorporation available online for free.

Too frequently – between 26 and 42 percent of the time – the requirements for IRC § 501(c)(3) status were not met and the IRS approval was erroneous. For example, as we reported in the 2017 Annual Report to Congress, one organization’s articles of incorporation stated that its purpose was simply “establishment and operation of a farmer’s market.” In 2017, the IRS revoked the exempt status of at least two organizations that described themselves as farmers’ markets, and in 2017 and 2018 denied IRC § 501(c)(3) status to at least two others. Those organizations, by providing a profitable outlet for local farmers and vendors, were primarily serving the private interests of those who came to the market to sell their products, as opposed to furthering an exempt purpose.

In view of our findings, it was a welcome development when the IRS acquiesced to my 2016 Taxpayer Advocacy Directive ordering it to revise Form 1023-EZ to require applicants to provide a description of their proposed activities. I also directed the IRS to require applicants to submit their organizing documents, but the IRS did not agree to that. The January 2018 version of Form 1023-EZ contains a field for the description, and the instructions to the form direct applicants to “consider your past, present, and planned activities” and to briefly (in 255 characters or less) “describe your mission or most significant activities.”

In light of these developments, we decided to take a quick look at how things seem to be going with the revised Form 1023-EZ, the theory being that with better information, the IRS is less likely to make a mistake in conferring IRC § 501(c)(3) status. The inquiry was greatly facilitated by the IRS’s Exempt Organizations Form 1023 EZ Approvals, which the IRS rolled out in 2017. The tool provides information from successful applicants’ Forms 1023-EZ in a spreadsheet format, with column CX showing the response to the question about mission or activities. On September 17, 2018, we downloaded the file of applications that were approved from April-June 2018. There were 15,351 entries. What follows are a few observations about what we found, not based on an analysis of a representative sample.

Because farmers’ markets seem to be cropping up, so to speak, in recent revocations and denials of IRC § 501(c)(3) status, we looked to see if any of the applications in the April-June 2018 file had the word “farmer” in the description of the organization’s activities (in column CX). There were 28 of these. We took a closer look at the first ten organizations that had “farmer” in the description and that also seemed to be operating a farmer’s market, judging from the complete description. We thought these might be applications that would attract the attention of an IRS reviewer.

Nine of the ten organizations were corporations, so we decided to try and look at their articles of incorporation to see if the articles met the organizational test. Five of the nine organizations were in states that do not make articles of incorporation publicly available – which is exactly why I ordered the IRS to require applicants seeking IRC § 501(c)(3) status to provide their organizing documents.  Of the remaining four corporations, one organization passed the organizational test and three clearly did not, based on the contents of their articles of incorporation. The three that did not meet the organizational test, like all ten organizations we looked at, have determination letters from the IRS recognizing them as IRC § 501(c)(3) organizations.

I suppose an occasional error out of 15,351 approvals might be expected, but this wasn’t very encouraging. Forging ahead, we then took a look to see if any organizations in the April-June 2018 file of approved organizations had “LLC” in their names, and counted 21 of those. There were at least 18 additional organizations that had “church” in column CX of the spreadsheet and appeared from their names to be actual churches (as opposed to an association of churches or something similar). LLCs and churches may qualify for IRC § 501(c)(3) status, but neither type of organization is eligible to use Form 1023-EZ. These errors make me wonder whether Form 1023-EZ applications, including the description of planned activities, are actually reviewed by a human.

I am flummoxed by the IRS’s continued mishandling of the 1023 process. All taxpayers should be concerned that the IRS continues to grant tax-exempt status – which is subsidized by all taxpayers – to organizations that clearly do not qualify for that status from the outset. TAS will continue to advocate for the IRS to either require organizational documents from the organization as part of the application process or negotiate access to those documents from the states within which those entities are organized. This is a modest, inexpensive step that would significantly enhance compliance with the Internal Revenue laws.


The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.

Read the past NTA Blog's

Additional Resources


Taxpayer Roadmap

Learn more about the Taxpayer Roadmap