January, 2013 Update
In it's 2013 Workplan, the
IRS had this to say about the Cyber 1023:
"EO is developing an interactive, educational version
of the Form 1023.
The interactive Form 1023 will feature pop-up text boxes for each line of
the form that provide instructions
and relevant links to online information
at IRS.gov and StayExempt.irs.gov. EO hopes that this form
§ 501(c)(3) applicants file a complete and accurate application for exemption
the quality and consistency of exemption applications. EO
plans to make this product available
to the public in FY 2013."
- emphasis added
Should you wait for the Cyber
In October, 2009, the IRS announced a substantial savings -
off the $850 User Fee - for using their "Cyber Assistant"
to prepare your application
for 501(c)(3) status. It is not clear
whether the IRS is contemplating a similar
fee discount for the
interactive application they plan to release in 2013. If there
be a discount, many non-profits may wonder whether it
sense to wait
for this web-based tool.
Here are some reasons you might not want to wait.
There have been a number of delays in the release of the IRS Cyber Assistant.
public was told to expect the Cyber 1023 in 2007, 2008, 2009 and 2010.
In 2011, the IRS announced that the Cyber Assistant
would be postponed again.
After so many false starts, it is hard to know whether 2013 will be the year
IRS finally succeeds in posting this on-line help for applicants.
27 Month Rule
A 501(c)(3) has until the end of the 27th month after it is created to file its
application. If your organization is near the end of its 27 month
grace period, you should
not wait for the Cyber 1023. Avoiding the hassles
of missing the 27 month deadline is definitely
worth any possible reduction
in the User Fee.
Delayed 501(c)(3) Benefits
status offers a number of benefits other than exemption from Federal
income tax: deductibility for contributions,
bulk mailing permits, state, local and
property tax exemptions, and eligibility for foundation
grants, to name a few.
Only you can weigh a possible discount against the costs of postponing
valuable benefits for your group.
In some cases,
lost benefits can be recouped once the IRS recognizes 501(c)(3)
status. There is one benefit,
though, that once lost may be gone forever: your
non-profit's reputation. If you think there
is any chance your organization will
be in the news sometime soon, don't wait for the Cyber 1023.
check the IRS website when writing articles about local charities. A news
pointing out that your group has not yet taken care of its IRS paperwork can do
Hard working men and women are spending years of their lives to
the Cyber 1023, but of course there will be glitches. As described by the
versions of the Cyber Assistant were not quite fully interactive.
Applications would still
have had to be
filed the old-fashioned way - on paper,
through the mail. Special bar coding inserted by the
Cyber Assistant when
the application was printed would alert the IRS that the applicant was eligible
One problem with earlier versions of the Cyber 1023 had to do with printing
Printing your 501(c)(3) application before it was finished was supposed to
in a form with a
"Draft" watermark, and no bar codes. This meant
you would not be able to submit the form unless it
met the Cyber Assistant's
definition of complete. When describing the Cyber Assistant in June of 2006,
"At the end of the day, you have to print out the 1023 and send it in. But lo
if you left something blank that needs to be filled in, it won't print.
If you are supposed to put
numbers in a particular area and you've put text,
it won't print."
In addition to
possible confusion about when an application is "complete,"
there seems to have been some question
about whether home computer printers
would be able to print bar codes that ccould be read by IRS equipment.
Although using the Cyber 1023 might save your organization some IRS
fees, it is not clear whether
other fees may apply. As originally planned, this
taxpayer-education and consistency-check tool would
not have been on
partners on their websites. This is
the real world, and these partners, both
for-profit and non-profit, would have had to recoup their costs somehow.
If significant numbers of organizations decide to wait for the Cyber 1023 in
order to pay a lower User Fee,
there could be processing delays due to an
increased inventory when the web-based assistant is finally
up and running.
A law enacted in 2006 requires the IRS to revoke the tax exempt status of
that have fallen three years behind in filing their annual reports.
that want their exempt status back will be required to submit a
new application form. By
the end of 2012, the
IRS had received about 30,000
reinstatement applications, significantly increasing their application workload,
some processing delays.