The IRS is revising Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, and its instructions, to help charities apply for 501(c)(3) tax-exempt status.

Effective January 31, 2020, applications for recognition of exemption on Form 1023 must be submitted electronically online at www.pay.gov. The IRS will provide a grace period during which it will continue to accept paper versions of Form 1023 (Rev. 12-2017).

The user fee for Form 1023 will remain $600 for 2020. Applicants must pay the user fee through www.pay.gov when submitting the form. Payment can be made directly from a bank account or by credit/debit card.

IRS News Release on the Taxpayer Certainty and Disaster Tax Relief Act provisions

The following provisions may apply to tax-exempt organizations’ current and previous tax years:

  • Retroactive Repeal of Unrelated Business Taxable Income – Qualified Transportation Fringe Benefits aka “parking lot tax” The Taxpayer Certainty and Disaster Tax Relief Act of 2019 retroactively repealed Internal Revenue Code (IRC) Section 512(a)(7), which increased unrelated business taxable income by amounts paid or incurred for qualified transportation fringes. Congress had previously enacted this provision as part of the Tax Cuts and Jobs Act, effective for amounts paid or incurred after December 31, 2017.If you wish to claim a refund or credit of the UBIT reported on your Form 990-T for 2017 or 2018 under Section 512(a)(7), you may do so by filing an amended
    Form 990-T as described in the form’s instructions.

    More information on this process is available on IRS.gov.

  • Tax simplification for private foundations The legislation reduced the 2% excise tax on net investment income of private foundations to 1.39%. At the same time, the legislation repealed the 1% special rate that applied if the private foundation met certain distribution requirements.The changes are effective for taxable years beginning after December 20, 2019.
  • Exclusion of certain government grants by exempt utility co-ops Generally, a section 501(c)(12) organization must receive 85% or more of its income from members to maintain exemption.Under changes enacted as part of the Tax Cuts and Jobs Act, government grants are usually considered income and would otherwise be treated as non-member income for telephone and electric cooperatives. Under prior law, government grants were generally not treated as income, but as contributions to capital.

    The 2019 legislation provided that certain government grants made to tax-exempt 501(c)(12) telephone or electric cooperatives for purposes of disaster relief, or for utility facilities or services, are not considered when applying the 85%-member income test. Since these government grants are excluded from the income test, exempt telephone or electric co-ops may accept these grants without the grant impacting their tax-exemption.

    This legislation is retroactive to taxable years beginning after 2017.