IRS Reasons for Rejecting Form 1023-EZ
The IRS recently released updated information about Form 1023-EZ processing over its first two years. The information below, an analysis of the reasons why the IRS has rejected Form 1023-EZ, may be of particular use to organizations completing the Streamlined Application for 501(c)(3) Status.
During the time covered by the study, 4,152 Form 1023-EZ applications were rejected. An organization that has its application rejected does not have the right to appeal the rejection, but may resubmit Form 1023-EZ or, alternatively, submit the long-form Form 1023. 41% of those rejected did, in fact, subsequently reapply.
Form 1023 Paperwork, In Millions of Hours, 1986 to 2016
Source: U.S. Office of Management and Budget. Click image to learn more.
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Rev. Proc 2014-11 (34%): The Form 1023-EZ submission date for these applications was more than 15 months after the date on which the IRS posted the organization’s automatic revocation for failure to file three consecutive 990-series returns. Form 1023-EZ cannot be used for retroactive reinstatement under these circumstances.
Ineligible (4%): These applicants were ineligible to use Form 1023-EZ to apply for tax exemption. This includes, for instance, churches, schools, hospitals, LLC’s, and credit counseling agencies.
Insufficient User Fee (9%): Form 1023-EZ is rejected if the applicant’s user fee payment is insufficient. Specifically, the applicant’s credit/debit card transaction is declined by the applicant’s financial institution.
No Response (3%): Applicant did not respond to an information letter and the case was rejected as incomplete.
Other (16%): Aggregation of EZs rejected for other reasons, each of which accounts for less than 2%
Missing Required Fields (3%): Although pay.gov includes entry validations, some internet browsers allow the applicant to bypass these validations, resulting in incomplete submissions. The IRS is working to fix this.
Invalid EIN (29%): Form 1023-EZ is rejected if the applicant uses an incorrect EIN and the correct EIN cannot be determined based on IRS records.
Inaccurate Date of Organization (2%): For organizations whose tax-exempt status was automatically revoked for failure to file a Form 990-series return for three consecutive years, Form 1023-EZ is rejected if the applicant indicates a date of formation that is inconsistent with IRS records.