The document discusses the process for creating a nonprofit charity and obtaining federal tax exemption. It explains that entities must be established in compliance with state laws, adopt bylaws and include certain clauses. It also discusses the differences between Form 1023 and the newer Form 1023-EZ. Form 1023-EZ is significantly shorter but has certain eligibility restrictions. It also notes some controversy around the ease of use of Form 1023-EZ.

1. Changes to the Federal Tax
Exemption Process
Jill T. Ojserkis, Esq.

2. Creation of nonprofit charity
• Create entity that is in compliance with state laws (e.g. nonprofit
corporation, an LLC with a 501(c)(3) member that wants to be
treated as a disregarded entity by its tax-exempt member, an
unincorporated association created under state law, a trust (either
by trust agreement, declaration of trust or formed through a Will)
• Adopt Bylaws
• Formative documents must include a purpose clause similar to “the
organization is organized exclusively for charitable, religious,
educational, and scientific purposes under Section 501(c)(3) of the
Internal Revenue Code, or corresponding section of any future
federal tax code.”

3. Creation of nonprofit charity
(Cont’d)
• Formative documents must include a dissolution
clause that permanently dedicates assets for a
501(c)(3) purpose
• Must obtain EIN through Form SS-4
• Entities that will file for tax exemption using Form
1023 must adopt a Conflict of Interest Policy (the
IRS has a sample in its Instructions for Form 1023)
• Apply for federal tax exemption using Form 1023
or Form 1023 EZ within 27 months after
incorporation

4. Creation of nonprofit charity
(Cont’d)
• Register the charitable business and file for sales
tax exemption (in NJ use Form REG-1E which
includes Form ST-5
http://www.state.nj.us/treasury/taxation/pdf/oth
er_forms/sales/reg1e.pdf )
• Charities operating or soliciting within NJ
receiving annual gross contributions of $10,00 or
more must register with the Division of Consumer
Affairs Charities Registration Section file an initial
registration statement (either Form CRI 200 short
form or CRI 150I)and annual renewals

5. Form 1023 vs. Form 1023 EZ
• Form 1023 has been in existence for over 20
years
• Form 1023 (2015 revision)is 31 pages long
• Form 1023 instructions (2012 revision) is 38
pages long with a 9 hour 39 minute estimated
average to prepare the base form (with Schedules
between 16 min. and 2 hours 22 minutes each)
• Form 1023 EZ (214 revision) is 3 pages long
• Form 1023 instructions (2014 revision) is 20
pages long with a 5 hour 33 minute estimated
average to prepare the form

6. Form 1023 Required Documents
• All formative documents (certificate of incorporation
and Bylaws)
• Narrative Description of Activities
• Conflict of Interest Policy
• List of Board members and officers and compensation
of each
• Leases and other agreements with highly compensated
officers and Board members
• Description of fundraising program
• Detailed financial data including Statement of Revenue
and Expenses and Balance Sheet

7. Form 1023 EZ Eligibility Worksheet
1. Do you project that your annual gross receipts will
exceed $50,000 in any of the next 3 years?
2. Have your annual gross receipts exceeded $50,000 in
any of the past 3 years?
3. Do you have total assets in excess of $250,000?
4. Were you formed under the laws of a foreign country
(United States territories and possessions are not
considered foreign countries)?
5. Is your mailing address in a foreign country (United
States territories and possessions are not considered
foreign countries)?

8. Form 1023 EZ Eligibility Worksheet
(Cont’d)
6. Are you a successor to, or controlled by, an entity
suspended under section 501(p) (suspension of
tax-exempt status of terrorist organizations)?
7. Are you a limited liability company (LLC)?
8. Are you a successor to a for-profit entity?
9. Were you previously revoked or are you a
successor to a previously revoked organization
(other than an organization the tax-exempt
status of which was automatically revoked for
failure to file a Form 990-series return for three
consecutive years)?

9. Form 1023 EZ Eligibility Worksheet
(Cont’d)
10. Are you a church or a convention or association
of churches described in section 170(b)(1)(A)(i)?
11. Are you a school, college, or university described
in section 170(b)(1)(A)(ii)?
12. Are you a hospital or medical research organization
described in section 170(b)(1)(A)(iii) or a hospital
organization described in section 501(r)(2)(A)(i)?
13. Are you applying for exemption as a cooperative
hospital service organization under section 501(e)?

10. Form 1023 EZ Eligibility Worksheet
(Cont’d)
14. Are you applying for exemption as a cooperative
service organization of operating educational
organizations under section 501(f)?
15. Are you applying for exemption as a qualified
charitable risk pool under section 501(n)?
16. Are you requesting classification as a supporting
organization under section 509(a)(3)?
17. Is a substantial purpose of your activities to provide
assistance to individuals through credit counseling
activities such as budgeting, personal finance,
financial literacy, mortgage foreclosure assistance,
or other consumer credit areas?

11. Form 1023 EZ Eligibility Worksheet
(Cont’d)
18. Do you or will you invest 5% or more of your total
assets in securities or funds that are not publicly traded?
19. Do you participate, or intend to participate, in
partnerships (including entities treated as partnerships
for federal tax purposes) in which you share profits and
losses with partners other than section 501(c)(3)
organizations?
20. Do you sell, or intend to sell carbon credits or carbon
offsets?
21. re you a Health Maintenance Organization (HMO)?

12. Form 1023 EZ Eligibility Worksheet
(Cont’d)
22.Are you an Accountable Care Organization
(ACO), or do you engage in or intend to engage
in ACO activities?
23.Do you maintain or intend to maintain one or
more donor advised funds?
24.Are you organized and operated exclusively for
testing for public safety and requesting a
foundation classification under section
509(a)(4)?
25.Are you requesting classification as a private
operating foundation?

13. Form 1023 EZ Eligibility Worksheet
(Cont’d)
26. Are you applying for retroactive reinstatement of exemption under
section 5 or 6 of Rev. Proc. 2014-11, after being automatically revoked?

14. Filing Form 1023 EZ
• Can be filed electronically on Pay.gov
• No documents are required to be attached
• Will need to refer to organizing documents,
EIN and Board list in completing form
• Should take less than ½ hour to complete
• Can be granted federal tax exemption within 2
weeks after filing

15. Form 1023 EZ is controversial
New York Times article reported that a coalition
of tax lawyers, state enforcement agents and
nonprofits are concerned that the new Form
1023 EZ makes it too easy to commit fraud
because it asks few questions about the
applicant.
http://www.nytimes.com/2015/04/09/business/
irs-shortcut-to-tax-exempt-status-is-under-
fire.html?_r=0

16. Resources
• IRS Internal Revenue Bulletin: 2015-1 Form 1023 EZ
http://www.irs.gov/irb/2015-1_IRB/ar11.html
• NJ Division of Taxation Tax Treatment of Nonprofit
organizations and government entities Bulletin MISC-3
http://www.state.nj.us/treasury/taxation/pdf/pubs/mi
sc3.pdf
• NJ Resources for Nonprofit organizations
http://www.nj.gov/lps/nonprofit-resources.html
• IRS Form 557 Tax-Exempt Status for your organization
http://www.irs.gov/pub/irs-pdf/p557.pdf

17. Questions?
Jill T. Ojserkis, Esq.
Cooper Levenson, PA
1125 Atlantic Avenue
Atlantic City, NJ 08401
jojserkis@cooperlevenson.com
(609)572-7514
(c) Cooper Levenson 2015