The IRS is developing a web-based product called “Cyber Assistant.” It will allow people to make an application for tax-exempt status for an organization. Online!
OMG! OMG! OMG!
This is amazingly good news for normal people and small nonprofits. Why? Because the IRS system for qualifying a nonprofit is currently paper-based with the entirely too OCD/anal-retentive Form 1023 application process.
Meaning it’s too complex for a normal person to consider doing (and you get bonus points if you, dear reader, have actually done a tax-exempt status application yourself), and expensive to hire a lawyer to do the work.
The IRS has just taken a chunk of revenue away from tax practitioners who do these applications, and put the money straight into the pocket of the nonprofit being organized. This is a Very Good Thing.
It is also a warning call to tax practitioners — if your business depends on doing brain-dead work at high prices, you’re going to be road kill.
Reader comments (21)
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Dear Hodgen Law Group,
Almost, but not quite. The coming IRS Cyber Assistant will not allow people to “file on-line,” and will not eliminate the paper-based form.
Applicants who use the Cyber Assistant will receive taxpayer education hints as they complete the form, but at the end of the day they will have to print out their application, attach their supporting documents and file in the normal way.
An application printed from the Cyber Assistant will have extra bar-coding inserted by the software. The presence of this extra bar-coding on the application form will entitle an applicant to pay the lowest User Fee ($200 v. $850).
Sandy Deja
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Sandy, thanks for the correction. My oops. I guess it falls in the Department of Too Good To Be True for me to think the IRS will produce an online system for a complex process such as Form 1023. Automating Form SS-4 online may be one thing. Getting tax-exempt status is quite another level of difficulty.
I used to do two or three nonprofit applications per year but stopped. It felt weird to charge well-meaning people a (relatively large) amount of money that could otherwise be put to good purposes. And I made a strategic decision to focus entirely on international tax. Maybe I should stick to that focus even with blog posts.
@philiphodgen
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Hmmm…
Here’s my problem…
I have to decide whether or not to go ahead and file before the 3rd of Jan, which more than likey would cost me $850 (although I fear I might be misunderstanding their 4 year $10,000 guideline)…or…
do I wait, use whatever money I have now to put into the organization, and just wait for the Cyber Assistant to come around, which would save me $650???
Your advice would be greatly appreciated.
DOC WALLER
Executive Artistic Director
The Layman Group -
DOC WALLER:
It depends. Have you hit the 15 month deadline to file for 501(c)(3) since you incorporated? (I think that there is an automatic extension of another 12 months if you don’t meet that deadline anyway). If you have, then you should consider filing so you don’t have any tax liability (although if it would be less than the $850, it may be worth it to wait). But as long as you’re within that time period since you’ve incorporated, or if you haven’t incorporated yet, you should wait.
The exception is if you’re gonna be looking to get grants to be a main part of your funding… if the 501(c)(3) status and determination letter is gonna be super important to your orgs ability to get money to function, then you should probably apply as soon as you can afford it.
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I think I might have been a bit too hasty on the “fees evaporate” comment. I just chaired the California Society of CPA’s annual two-day Tax Update and Planning Conference in late November. The person who gave us the exempt organizations update session told us that the new Form 990 had — on average — doubled the number of billable hours for preparation. I think he gave an average of 23 hours or so per Form 990.
Good God. Here I thought that international tax compliance was overwrought, overdone, and dumb. Exempt orgs have it worse.
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Yes I was too lazy to log into the admin panel in order to post a comment to this thread. So sue me!
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Hi,
Found all your comments very helpful.Read the answer to Doc Waller regarding (should wait for Cyber Assistant). That was my question too until I saw there is a limitation clause “Have you hit the 15 month deadline to file for 501(c)(3) since you incorporated?”
I’m meeting with the officers this evening (Mon, Dec 21st). If they incorporated more than 15 months ago…. where do they go from here? Is there yet another GFF (God forsaken form) we need to fill out?
One more question… if we hire someone to do the 1023, what can we expect to pay? Not counting the 1023 fee. I’m sure it varies, we’re in Providence RI. We’re a amateur semi-pro football team that participates in youth community outreach and community activities. We would like to receive sponsorships (from local businesses & public) and grants to fund our activities. The owners are funding all the expenses and ready to give up.
Deb
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Great info. Basic question…does anyone have any idea when in 2010 Cyber Assistant will be live? Are we talking early in the year like Jan-Feb, or much later…or more than likely…”no one really knows.” Thanks for any input.
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In answer to Deb’s question, I found the found the following information in an IRS brochure (http://www.irs.gov/pub/irs-pdf/p4220.pdf):
Most organizations must file Form 1023 by the end of the 15th month after they were created, with a 12-month extension available. An organization that is not a private foundation is not required to file Form 1023 unless its annual gross receipts are normally
more than $5,000. An organization must file Form 1023 within 90 days of the end of the year in which it exceeds this threshold.
Example 1: An organization that was created on January 1, 2007, and exceeds the gross receipts threshold, must file Form 1023 by April 30, 2010.
Example 2: An organization that was created on January 1, 2004, but did not exceed the gross receipts threshold until September 30, 2008, must file Form 1023 by March 31, 2009.
An organization that files its application before the deadline will be recognized as tax exempt under section 501(c)(3) of the IRC from the date of its creation. An organization that files an applica-tion after the deadline may be recognized as tax exempt from the date of the application; it may also request exemption retroactive as of the date of creation. See the instructions to Form 1023 for more information. -
Anything that will ease the burden of filing a Form 1023 is a good thing. Is it just me or has Form 1023 become much more lengthy and complex (and expensive) in the last 10 years or so?
Has anyone heard any news about when they might be rolling this out?
Chris Watkins
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Everybody asks when Cyber 1023 will roll out, everyone says, “not sure.” At there is an interesting commentary suggesting some cautions regarding counting on any particular date, as well as the way the new program will work and the current glitches allegedly causing the delays in roll-out.
Also, I read one comment about the extension of the 15-month deadline to file the form that suggested the possibility of the extension being automatic. We should be quite sure when dealing with government deadlines, as consequences of missing them can be troublesome.
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I am about finished with the 1023 form for a new organiz. I’m an experienced development professional of some 30+ years in the business and found that if one searches sites and compiles samples and reads the IRS instructions it’s not so bad. I suspect we’ll do just fine in review. It feels like what happened when I went to file a 6″ zoning request in our city for a side yard setback for an existing driveway that needed to be covered (so that I could convert the garage into a pool house.) After they stopped trying to tell me all the reasons why I should use a private “expeditor” (cost btw of $15K) and wouldn’t be able to file the forms myself, I completely determined that I would prove them wrong. And did. got the appeal approved by myself and some good research. My point — one CAN do the 1023 themselves. Just relax, read and use your brain.
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I am blindly determined to complete the 1023. I am very intimidated by section iv which I interpret to be the heart of the form. It seems they went lengthly details on something that hasn’t started..how can I raise funds if I can’t offer my donors a tax incentive…..so confused !,,,,
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Just starting this process for the first time. I couldn’t believe the price of $400 or $800 for filing. That just sounds way too expensive for the fact of just filing a form. I can see $150 but when you are starting out and have hardly no money in the coffer to begin with the money can be hard to come by.
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With some trepidation, I am ready to submit the 1023 for our organization, Friends of Burling Park. I didn’t find the 1023 terribly daunting, but I probably spent a good 20 hours completing it. Thankfully an experienced pro bono attorney provided a few pointers on our application.
The CyberAssistant probably would have been helpful here, but who has time to wait?
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Has there been any word on a release date for Cyber Assistant as of October, 2010?
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Did this question ever get answered?
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Here’s the latest on the Cyber Assistant:
The Form 1023 is due to be revised. It is one of the first IRS forms to go through a new “on-line” comment period. If you have changes to suggest for Form 1023, go to http://www.precomment.gov
Since the Cyber Assistant is based on Form 1023, any changes the IRS decides to make to Form 1023 (and there’s a chance they might not make any) will delay the release of the Cyber Assistant even more.
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Sorry for the typo: The comment website url should be http://www.pracomment.gov. (Stands for Paperwork Reduction Act comments.)
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how much does it cost to file a 501c3 using cyber assistant.
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Margretta – The IRS has still not started using the Cyber Assistant. IRS promouncements during the first half of 2012 make it clear that the Cyber Assistant has been postponed indefinitely.