The nonprofit formation process is under scrutiny. This week’s Kiplinger Tax Letter devoted attention to the topic. It referred to an unnamed 2019 IRS study that concluded that 46% of 1023 EZ filings were erroneously approved. Some lawmakers are calling for an end to the 1023EZ filing.
Recent conversations with IRS employees the exempt organization division confirm a change in procedures. One new nonprofit application that I expected quick approval has required months of additional back-and-forth communication. I was surprised when the agent asked to see a business plan for the new organization. Typically, in my experience, a new nonprofit does not tackle that task of strategic planning until after formation and first round of funding.
My accounting practice handles about a dozen nonprofit formations each year ranging from charities to Political Action Committees. In the past this formation service was priced at about $1,500 and could be accomplished in about a day. Going forward, it will need to be higher to accommodate the additional IRS scrutiny and documentation requirements.