In Revenue Procedure 2020-08, the IRS has modified earlier guidance (Revenue Procedure 2020-05) to require electronic submission of Form 1023, Application for Recognition of Exemption Under Section 501(c)(3), as of January 31, 2020. An organization can file a completed Form 1023 and pay the required fee (through bank account (ACH) or debit/credit card) at www.pay.gov. The guidance also provides a 90-day transition relief period during which paper submissions of Form 1023 will be accepted; the 90-day period commences on the effective date of the guidance, which will be published in the Internal Revenue Bulletin on February 18, 2020.

The pay.gov home page provides that the form will need to be completed through the website and a single PDF (not to exceed 15MB) should be uploaded at the end of the application. The PDF should contain (1) the organizing document and any amendments, (2) the bylaws, if adopted, (3) the signed and completed Form 2848 or Form 8821 (if applicable), (4) any supplemental responses (if applicable) and (5) any request for expedited handling (if applicable). If the PDF file exceeds 15MB, the applicant will need to remove any items over the limit and contact IRS Customer Accounts Services (CAS) at 877-829-5500 for assistance on how to submit the removed pages.

After submitting the application, applicants can download an exact copy of their electronically submitted Form 1023 and all attachments in a PDF file format through their pay.gov account. Additionally, the website indicates that applicants can expect to be contacted within 180 days from the date of submission. Taxpayers that have not been contacted within 180 days are encouraged to call the IRS CAS to receive an update on the status of their application.

Organizations submitting a paper version of Form 1023 within the 90-day transition relief period must follow the guidelines set forth in Revenue Procedure 2020-05. Revenue Procedure 2020-05 instructs those submitting exemption applications on Form 1023 to mail a hard copy of the forms to the IRS processing center in Covington, Kentucky.

Implications

The requirement to electronically submit Form 1023 should streamline the exemption review process by reducing the steps necessary to matriculate the application. It should also significantly reduce the number of errors created by the legacy input system. Overall, mandatory electronic filing submission should create efficiencies that will result in a faster and more productive application review process.

One requirement of the mandatory electronic application submission process is that the taxpayer create a pay.gov account to access and submit the application. This, in turn, may require some additional coordination between the applicant and any third-party advisor engaged to assist with the exemption application submission.

Taxpayers preparing a paper version of Form 1023 may wish to evaluate the benefits of the new electronic filing requirement versus completing and filing the paper application before the end of the 90-day transition relief period.

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