Effective as of this month, the IRS has approved a new, shorter application form to help small charities apply for 501(c)(3) status. The new form replaces the old, 26-page long application with a three page form.  Most organizations with gross receipts less than $50,000 and assets less than $250,000 are eligible to file the new form.

The objective of this reform is to speed the approval process for small groups and to free up resources to allow for a more thorough review of the larger applicants.  This may also signal a change of emphasis from front-end screening to back-end review/audit.  To qualify for 501(c)(3) status, an entity must be organized and operated for an exempt purpose.   Traditionally, the IRS has expended considerable resources attempting to ensure that proposed exempt organizations are organized for an exempt purpose.  However, many exempt organizations experience operational drift once they get their certification, and their operations may no longer fall within the descriptions set forth in their tax forms.  Furthermore, the front-end screening process is ill-suited to detecting outright fraud.  Consequently, many suspect the IRS will now begin bulking up its Review of Operations Unit, which typically compares an entity’s tax returns with its application to look for discrepancies and to otherwise ensure the entity is being operated for an exempt purpose.

These changes stem in part from the recent scandal regarding IRS targeted review of tea party entities applying for 501(c)(4) status.   These changes respond to the scandal by both getting the IRS out of the screening process for most charities and by helping shorten the exempt organizations backlog.

The new EZ form can be seen here.

For a good analysis of the changes, see this article from Tax Analysts.

For some criticism of the changes, see this piece from last week’s Time Magazine.