IRS Advisory Committee On Tax Exempt And Government Entities Recommends Significant Changes

Author:Proskauer's Not-For-Profit/Exempt Organizations Practice Group
Profession:Proskauer Rose LLP

Last week, the IRS Advisory Committee on Tax Exempt and Government Entities ("ACT") held a public meeting at which the panel submitted its latest round of recommendations to senior IRS executives. At the meeting, the ACT's Exempt Organizations project team presented a report containing several recommendations intended to improve the application process for organizations seeking recognition of exempt status as a Section 501(c)(3) charitable organization, including significant revisions to the content of, and filing process for, Form 1023 (the application for recognition of exemption under Section 501(c)(3)). In the report, the ACT recommends that the IRS take the following actions to improve the efficiency, effectiveness and educational benefits of the application process:

create an electronic version of Form 1023 that can be filed electronically and stored, transmitted and disseminated in an electronic database format; revise Form 1023 to make the form: (i) moreeffective as a tool for identifying organizations that are, and are not, organized for charitable purposes; (ii) more consistent in substance, format and terminology with the annual information return Form 990; (iii) more simple in format with a more concise core form and additional supplemental schedules; and (iv) more educational for applicants, many of which are small organizations that receive no professional assistance when completing the form; coordinate with the Treasury Department and the Office of Chief Counsel to issue precedential guidance about, and increase public awareness of, tax-compliant alternatives to the creation of new Section 501(c)(3) organizations, such as the utilization of fiscal sponsorships and donor-advised funds, which would, in many cases, be more effective vehicles for small non-profit organizations looking to carry out activities of relatively short duration (e.g., organizations created to receive memorial donations for a deceased individual or to fundraise for a specific short-term project); carefully examine recurrent complaints about the Form 1023 application process and take appropriate follow up steps to address such complaints; and coordinate with state charity regulators to expand the IRS' use of the Review of Operations ("ROO") unit to identify and track newly recognized exempt organizations that may have a higher-than-average risk for future non-compliance with the requirements for exemption based on certain characteristics identified by...

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