July 8, 2010
Authored by: Carrie Herrick
The date when an organization files its IRS Form 1023 application for federal tax-exempt status has an effect on the date the organization will be considered tax-exempt under Section 501(c)(3). If an organization files Form 1023 within 27 months after the end of the month in which it was legally formed, and the IRS approves the application, the effective date of Section 501(c)(3) status will be retroactive to the date of formation. If an organization does not file within 27 months of formation, Section 501(c)(3) status is generally effective as of the date it files the Form 1023 application (the postmark date).
For organizations with gross receipts exceed more than $10,000 annually, the U.S. Department of Treasury generally requires a fee of $850 to process a Form 1023 application (for organizations with gross receipts do not exceed $10,000 annually, the fee is $400). However, the IRS has been developing an electronic application processcalled Cyber Assistant that will only require a filing fee of $200 (subject to future increase), regardless of the budget size of the organization. Some organizations wishing to file for determination of Section 501(c)(3) status may be waiting to file the application electronically via Cyber Assistant in order to pay the reduced filing fee, rather than submit a paper application and pay the higher filing fee. Unfortunately, the IRS has announced recently that, due to software problems, it must delay the release of Cyber Assistant beyond the 2010 calendar year.
There is no definite release date for the program at this time. In light of this delay, an organization should reevaluate the decision of when to file a Form 1023. If the organization is not going to accept any donations or receive any revenues, it may be possible to continue to wait until the Cyber Assistant (and the reduced filing fee) is available regardless of the 27 month period. However, if an organization has already accepted donations or received revenues, and the 27 month period will expire in 2010, the organization should ensure that it satisfies the 27 month rule and file Form 1023 prior to such expiration.