Entities looking to apply for tax-exempt status under IRC §501(c)(3) on Form 1023 (Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code) now must submit that form electronically. In Revenue Procedure 2020-8[1] the IRS updated the procedures under Revenue Procedure 2020-5 to mandate that applications for exempt organization determination letters must be handled electronically for applications after January 31, 2020. However, the procedure does provide for a temporary 90-day transition relief period.

IRS News Release IR-2020-25[2] provides the following summary of the changes:

Beginning January 31, 2020, applications for recognition of exemption on Form 1023 must be submitted electronically online at Pay.gov. The IRS will provide a 90-day grace period during which it will continue to accept paper versions of Form 1023 (Rev. 12-2017).

The required user fee for Form 1023 will remain $600 for 2020. Applicants must pay the fee through Pay.gov when submitting the form. Payment can be made directly from a bank account or by credit or debit card.

The Form 1023-EZ previously had been accepted only electronically, so this simply makes all applicants use the electronic system once the grace period ends.

Section 4 of Revenue Procedure 2020-5 provides the following 90-day transition relief, which will run through April 30:

The Internal Revenue Service will accept for processing a completed paper Form 1023 accompanied by the correct user fee, as described in Rev. Proc. 2020-5, without applying the modifications of this revenue procedure, if the submission of the Form1023 is postmarked on or before the date that is 90 days after the effective date of this revenue procedure.[3]

Once that period expires, it appears the IRS does not plan to offer any sort of paper filing option to applicants:

Except as provided in section 4.02, an organization seeking recognition of tax exempt status under § 501(c)(3) using Form 1023 must electronically submit the form and user fee online at www.pay.gov.[4]

The IRS’s intent to move to mandatory electronic filing of these forms was announced in October 2019. Questions had been raised regarding issues that could arise with these changes.

In December 2019, the IRS issued a letter responding to a query by two attorneys with Jones Day.[5] First the letter addressed the question of whether an applicant would be able to download a copy of their completed electronically filed Form 1023.

You asked if an applicant will be able download an exact copy of their electronically submitted Form 1023 in a format that is easy to read and understand. Yes, applicants will be able to download an exact copy of the form and the attachment submitted in an easily readable PDF file format. Applicants will access the Form 1023 PDF file and attachment through their Pay.gov accounts.[6]

The letter also addressed a concern that arose based on the size limits on attachments in the electronic filing system:

You also asked what mechanism will be offered to an applicant that wishes to submit more pages of attachments than the electronic system allows. Form 1023 on Pay.gov will accept a single PDF file, up to 15MB. If the PDF file exceeds the 15MB limit, the applicant should 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 items. CAS will provide the applicant a fax number, allowing the material to be faxed to the IRS to complete the application. This information will be available on the Form 1023 Pay.gov landing page as well as in the Instructions for Form 1023. [7]

That is, the paperless submission will be followed up with paper-based fax submissions to contain the additional material when the application is larger than the electronic system is capable of handling.

In a Tax Notes Today Federal article regarding the IRS announcement, Gerald Griffith of Jones Day, one of the authors of the inquiry that led to the December letter, is cited as cautioning charities that this process may lead to the availability of a completed Form 1023 online via the IRS’s own site, or posted on sites such as Guidestar, the National Center for Charitable Statistics, or ProPublica.[8]

The article continues:

“So in the future, any stakeholder may be able to easily access the [Form] 1023 without the organization’s knowledge instead of having to ask the organization or the IRS for a copy,” Griffith said. [9]

[1] Revenue Procedure 2020-8, January 31, 2020, https://www.irs.gov/pub/irs-drop/rp-20-08.pdf (retrieved February 2, 2020)

[2] “IRS revises Form 1023 for applying for tax-exempt status,” News Release IR-2020-25, January 31, 2020, https://www.irs.gov/newsroom/irs-revises-form-1023-for-applying-for-tax-exempt-status (retrieved February 2, 2020)

[3] Revenue Procedure 2020-8, Section 4.02

[4] Revenue Procedure 2020-8, Section 4.01

[5] “IRS Answers Practitioners' Questions on E-Filing of EO Applications,” Author: Margaret Von Lienen,

Director, Exempt Organizations and Government Entities (Internal Revenue Service),Tax Notes Today Federal, 2020 TNTF 2-16, December 19, 2019, https://www.taxnotes.com/tax-notes-today-federal/exempt-organizations/irs-answers-practitioners-questions-e-filing-eo-applications/2020/01/03/2bqxt (Subscription required, retrieved February 2, 2020)

[6] “IRS Answers Practitioners' Questions on E-Filing of EO Applications”

[7] “IRS Answers Practitioners' Questions on E-Filing of EO Applications”

[8] Fred Stokeld, “Mandatory E-Filing of EO Form Arrives,” Tax Notes Today Federal, February 3, 2020, https://www.taxnotes.com/tax-notes-today-federal/exempt-organizations/mandatory-e-filing-eo-form-arrives/2020/02/03/2c4cm (retrieved February 2, 2020, subscription required).

[9] Fred Stokeld, “Mandatory E-Filing of EO Form Arrives,” Tax Notes Today Federal, February 3, 2020, https://www.taxnotes.com/tax-notes-today-federal/exempt-organizations/mandatory-e-filing-eo-form-arrives/2020/02/03/2c4cm (retrieved February 2, 2020, subscription required).