7.20.9. Processing Form 1023-EZ

(1) Form 1023-EZ, Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code, is a shortened version of Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. Any organization can file Form 1023 to apply for recognition of exemption from federal income tax under IRC 501(c)(3), but only certain organizations are eligible to file Form 1023-EZ.

(2) Rev. Proc. 2023-5 (updated annually) includes:

• Eligibility criteria to submit Form 1023-EZ

• Procedures for requesting exemption under IRC 501(c)(3) using Form 1023-EZ

• Standards for issuing determination letters based on Form 1023-EZ

(3) Organizations are required to complete the eligibility worksheet before submitting the Form 1023-EZ application and must attest they’re eligible to file Form 1023-EZ. Form 1023-EZ instructions contain the Form 1023-EZ Eligibility Worksheet.

(4) EO Determinations is responsible for processing Form 1023-EZ.

(5) The IRS won’t accept a Form 1023-EZ that isn’t completed per Rev. Proc. 2023-5 (updated annually). Non-acceptance of Form 1023-EZ is referred to as a rejection in this manual.

(6) These procedures apply to tax examiners and EO Determinations specialists, except as specifically noted.

(1) Rev. Proc. 2023-5 (updated annually) sets forth procedures for issuing determination letters on issues under the jurisdiction of the Director, EO Rulings and Agreements. It explains the procedures for issuing determination letters on exempt status in response to applications for recognition of exemption from federal income tax under Section 501 or 521 (other than those subject to Rev. Proc. 2023-4, updated annually), private foundation status, and other determinations related to exempt organizations. Rev. Proc. 2023-5 also provides guidance on the exhaustion of administrative remedies for purposes of declaratory judgment under IRC 7428 and guidance on applicable user fees for requesting determination letters.

(1) EO Rulings and Agreements is responsible for issuing determination letters on exempt status, private foundation status, and other determinations related to exempt organizations.

(1) Exempt Organizations Determinations Quality Assurance (EODQA) reviews determination cases to ensure:

1. technical accuracy

2. adherence to written procedures

3. uniform and impartial treatment of exempt organizations' interests while protecting the government's interest, and

4. identification of unfavorable case patterns, trends affecting processing quality, problem areas, unique issues, and new or novel techniques that Exempt Organizations Determinations (EOD) specialists develop.

(1) Commonly used abbreviations include:

(1) Use the date of formation, Form 1023-EZ Part V, and IDRS research (BMFOLO, BMFOLI, and BMFOLT) to determine the effective date of exemption.

(2) Determine the effective date of exemption as follows:

(3) If the organization is in Status 97, determine the effective date of exemption as follows:

(4) If the organization is in Status 97, then make sure they are correctly listed in TEOS.

(1) Reject a Form 1023-EZ for the following reasons:

1. The organization has a pending "I" case (other than Form 1023-EZ) in any open Status.

2. The organization requests retroactive reinstatement under Rev. Proc. 2014-11, Section 4, but doesn’t meet the requirements of Section 4.

3. The EIN on the application doesn’t show up on BMFOLO, NAMEE, or ENMOD, and you can’t determine the correct EIN based on IDRS research.

4. The user fee payment is insufficient or did not process.

5. The organization isn’t eligible to file Form 1023-EZ.
   

   Example: Organization is formed as an LLC or for profit entity according to the state website, the organization was previously revoked (Current Status Code 22), or other ineligible reason listed on the Eligibility Worksheet in the Instructions for Form 1023-EZ.

   
   

6. The organization doesn’t respond to an additional information request letter (see IRM 7.20.9.4.6).

(2) When rejecting a Form 1023-EZ:

1. Prepare Form 14268 User Fee Refund Request. Name it Form 14268 - User Fee Refund.

2. Import Form 14268 into the MEDS Non-Disclosable folder.

3. Select Other Internal Forms for the Document Type and User Fee Refund Request for the Document Name.

4. In Case Information, select Case Category - Forward Form 14268 - User Fee Refund.

5. Manager (or designated case reviewer) selects Checkout/Edit for the imported Form 14268, digitally signs it, then checks it in so it can be signed by the Adjustments Unit manager.

(3) Prepare Letter 1049 , Form 1023-EZ Rejection. If there is more than one rejection reason, include all the reasons in the rejection letter.

(4) When updating MEDS for a rejection closure (03):

• Input the case category for the rejection reason, and

• Clear out the NTEE code and input a classification code on the closing tab.

(1) An organization may withdraw Form 1023-EZ only if an authorized individual requests it in writing before EO Determinations issues a determination letter (see IRM 7.20.2.5.6).

(2) If the organization withdraws its application in writing, prepare Letter 2244 with a closing code of 04. Don’t enter NAICS/NTEE codes. Generally, the user fee is not refunded. See Rev. Proc. 2023-5, updated annually.

(3) If the organization withdraws its application because it’s already exempt under that subsection, prepare Letter 5239, close using closing code 12 (Other), and initiate a user fee refund.

(4) When closing a case as a withdrawal:

1. Enter the Type of Organization and Accounting Period on the MEDS EO Closing Data tab.

2. Move all documents in the Disclosable folder to the Non-Disclosable folder.

(1) If IDRS research shows that an organization was erroneously revoked, do the following:

1. Send an encrypted email with the subject line Erroneous Revocation to *TE/GE-EO-Correspondence Unit with the organization’s name, EIN, formation date, fiscal year month, revocation date, and explanation of why it’s erroneous

   Note: If the revocation date is wrong on TEOS but doesn’t effect the case you’re working, have TEOS updated to the correct revocation date.

2. Verify that the Correspondence Unit will correct the organization’s exempt Status on IDRS and/or Tax Exempt Organization Search (TEOS).

3. Document the response in the CCR and import the email from the Correspondence Unit into the MEDS Non-Disclosable folder.

4. Continue processing as follows:

(1) To request specialist involvement, send an encrypted email to *TE/GE-EO-Determinations Questions with the organization’s name, EIN, and issue. Put the issue in the subject line. Document the CCR and import a copy of the email into the MEDS Non-Disclosable folder. You must request specialist involvement for:

1. An organization whose previous Form 1023-EZ, Form 1023, Form 1024, or Form 1024-A was rejected (closed Status 03), withdrawn (closed Status 04), or denied (closed Status 02)
   

   Exception: Do not request specialist involvement if the prior application was rejected due to an insufficient user fee, a requested change in foundation classification, or Rev. Proc. 2014-11, Section 4, requirements not being met.
   

   
   

2. An organization with a ruling date prior to the formation date that is in Status 97 and isn’t a subordinate in a group ruling

3. An organization exempt under 501(c)(4) that is in Status 36 (or in Status 97 with a prior Status 36) and the EIN establishment date is between 2014 and July 2015
   

   Note: Use the subject line "501(c)(4) - Status 36" when requesting specialist involvement. Include the organization's name, EIN and formation date.
   
   

4. An organization with LLC as part of its name or indications of for profit Status (for example, IDRS indicates PARTNER or MEMBER)

5. A mission/activity description that appears adverse to 501(c)(3) exemption requirements

6. A mission/activity description that can’t be determined

7. A mission/activity description that indicates the applicant is ineligible to file Form 1023-EZ

8. A potentially non-501(c)(3) NTEE code

9. A potentially ineligible NTEE code
   

   Note: Use the subject line "Potentially Ineligible NTEE Code" when requesting specialist involvement. Include the organization’s name, EIN, NTEE code, mission/activity description, and website address (if provided).

   
   

10. An invalid NTEE code

(2) Prior to requesting specialist involvement, complete all steps listed in IRM 7.20.9.4. If the application has more than one issue requiring specialist involvement, send one email listing all issues.

(3) Don’t request specialist involvement if rejecting the application.

(4) If the specialist notifies the tax examiner that the case has been accepted to be reviewed by a specialist, in MEDS select the Agent Referral Case Category and update the case to the EO Determinations unassigned inventory (Status 71).

(1) In addition to the case assignment and processing procedures outlined in this IRM and IRM 7.20.2, review IDRS, EDS, MEDS, and conduct internet research as needed to address the identified referral issue(s) in the case.

(2) If the reviewed information shows the organization is ineligible to file Form 1023-EZ (for example, state website shows LLC or organization’s website shows it is a hospital, etc.), reject the application (see IRM 7.20.9.4.2).

(3) For tax examiner referral cases, send Letter 1312, Request for Additional Information, as needed to address the identified referral issue(s) in the case.

(4) For pre-determination cases, send Letter 1312, Request for Additional Information, to request the organizing document (if unable to print from the state website or secure from prior application), a more detailed description of activities, financial information, and details regarding specific activities indicated in Part III of Form 1023-EZ. Ask additional questions, as needed. Follow the procedures and requirements for requesting additional information in IRM 7.20.2 except as specifically noted here, as well as in IRM 7.20.9.4.6.1 and IRM 7.20.9.4.6.2.

1. For pre-determination review and referral cases, ask additional questions as needed, including:

If information shows	Then add to Letter 1312 a
Organization doesn’t meet IRC 501(c)(3) organizational test requirements	Request to amend the organizing document (using the relevant streamline question as appropriate).
A significant difference between the date of formation on Form 1023-EZ and the date listed on the state website	Question to address the date of formation issue.
Organization may not qualify for exemption under IRC 501(c)(3) (such as inurement, political activity, better classified under another subsection, etc.)	Question to address the potentially disqualifying information and share a copy of internet printouts in the information request letter.
Activities or grants outside of the United States	Question to address foreign activities and grants (see IRM 7.20.6). Note: For Pre-determination review cases with foreign activities or grants, the manager will review the information and the specialist and manager will determine if the specialist should complete Form 14503, Potential Terrorism Connection Checksheet per IRM 7.20.6.

2. For tax examiner referral cases, do the following for any referral issues (see also IRM 7.20.9.4.5.1) and make sure to address any new issues found during review:

If the issue is	Then research or ask for information as needed to determine
An OFAC potential match	Identity of potential match (see IRM 7.20.6).
An invalid, ineligible, or potentially non-501(c)(3) NTEE code	The organization’s activity/code.
A ruling date prior to formation date (Status 97) and was not a subordinate in a group ruling	Formation date or entity type (request organizing document).
An LLC or other indication of for profit status	If organization is formed as a for profit.
Prior application (Form 1023-EZ, Form 1023, Form 1024, or Form 1024-A) closed Status 02 (denied), 03 (rejected), or 04 (withdrawn)	Eligibility to file Form 1023-EZ and qualification for exemption.
Unclear, can’t be determined, or appears contrary to exemption requirements	Qualification for exemption.
The organization is requesting reinstatement under Rev. Proc. 2014-11, Section 7, and IDRS research shows the applicant was a private foundation at the time of automatic revocation and is seeking reinstatement as a public charity	Then research or ask for information as needed to determine: If the organization will change its requested classification to private foundation. If private foundation status was granted in error.

(1) Prepare the appropriate determination letter following the procedures in IRM 7.22.4, including the appropriate selective paragraphs and addenda in the letter (see MEDS Closing Worksheet for paragraph and addendum information).

(2) When preparing the closing letter:

• Verify that the closing letter includes the EO R&A Director’s name, title, and signature.

• Date the closing letter using the date that the case is updated to status 74PC in MEDS.

• Convert the closing letter to a non-fillable PDF (in other words, print to Adobe PDF) and import it into the MEDS Working folder.

(3) Input closing information (see Form 1023-EZ EDS Closing Worksheet and Document 6379, Information Systems Codes FY 2023 Quick Reference for EO Employees, updated annually).

(4) Complete a CVENT survey for all predetermination review and tax examiner referral cases.

(5) For cases subject to mandatory review, in MEDS, click on Case Information and then File. Select Mandatory Review. From the drop-down menu, select the correct mandatory review type.

(6) Submit the case to your manager for review.

(7) Managers will review cases in Status 74PC using current case processing timeframes outlined in IRM 7.20.2.5.7, Managerial Review and Return of Cases, and IRM 7.20.9.3, Time Frames.

(8) The manager will check the manager approval box on the MEDS EO Closing Data tab.

(9) After the manager reviews and approves the case closing in MEDS, the case will be assigned within five days to a case closing employee.

(10) The case closing employee will complete the necessary case closing actions (see IRM 7.21.5.5, Case Closing), including:

• Verify the closing letter is dated and contains the EO R&A Director’s signature and name/title.

• Print the closing letter.

• Move the final closing letter to the appropriate MEDS folder.

• Close case in MEDS and EDS within two days of case assignment.

(11) If a subordinate is leaving a group ruling, prepare Form 2363-A according to the procedures in IRM 7.20.4.7, Subordinates Leaving a Group Ruling for Individual Exemption.

(12) The Adjustments Unit queries MEDS closed cases for Form 2363-A, Request for IDRS Input for BMF/EO Entity Change, and Form 14268, User Fee Refund, and forward the forms to be processed. Once the forms have been forwarded, the Case Categories *Form 2363-A Request Processed and *User Fee Refund Request Processed will be added in MEDS.

(13) See the following for additional case closing information/assistance:

• IRM 7.20.2.4.2, Proposed Adverse Case Closing

• IRM 7.20.2.5, Case Closing

• IRM 7.20.2.5.3, Operation Assistance Request (OAR)

• IRM 7.20.2.5.4, Approvals

• IRM 7.20.2.5.6, Withdrawals

• IRM 7.22.4, Modified EO-EP Determination System (MEDS) User Manual

• IRM 7.22.8, EP/EO Determination System (EDS) User Manual