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The Cyber-Assistant will do good things for first-time 501(c)(3) applicants but will it do enough to justify waiting to submit your 1023 application?

In 2003, the IRS started a review and revision process of how they examined applications for 501(c)(3) tax exempt status. They called this process, “Project ASPIRE,” and was created in response to the large increase in 1023 applications. At that point, the number of exempt applications was increasing by over 40% while the number of IRS Exempt Organization employees was remaining the same. The goal of Project Aspire was to find ways to streamline the 1023 application process, both for the applicant and the IRS. Following the project the IRS made some good strides, most notably, the elimination of Form 8734 (Advance Ruling Period). However, the major recommendation of this project was to continue previous efforts to develop a fully interactive filing for the 1023 application, termed the “Cyber-Assistant.”

One of the major changes in submitting your 1023 application through the Cyber-Assistant will be the stated decrease in the filing fee ($200 regardless of previous or projected revenue). It also may cut down on paper; however, since the last report, the application would still be printed and then mailed to the IRS. 

For as much flak as the IRS takes, I must say that they are doing the right thing here. After all, that 2003 project that was mentioned earlier, Project ASPIRE, stands for:

Alleviate any application backlog

Streamline the determinations process

Prioritize application review

Improve customer service

Redirect resources to cases deserving enhanced review and compliance

Enhance quality control 

But while all of this is good, is it really beneficial to wait for the Cyber Assistant to apply for your 501(c)(3) tax exempt status? After all, the idea for the Cyber Assistant dates back well beyond 2003 and the IRS has promised its release year after year.

Here are some reasons you should not wait:

1. Benefits of obtaining 501(c)(3) status that may apply to your organization include discounts on postage, exemption from state and sales taxes, property tax exemptions, and eligibility for private and government grants. In determining whether or not to wait, you need to determine if you can afford to miss these benefits.
2. Your 501(c)(3) status will be retroactive to the date of your incorporation as long as you submit your 1023 application within 27 months of being formed. This means that previous donations to your organization may qualify as tax deductible contributions. If you submit your1023 application after this, you will lose this benefit and be required to submit additional paperwork.
3. Delays and technical issues may plague the Cyber Assistant for many of its initial months once it is released. Although the IRS has designed it with the end-user in mind, good intentions do not always mean good implementation. As with most new software releases, the Cyber Assistant will not be immune to bugs and technical issues, which may add delays to processing your 1023 application. Furthermore, with the stated lower filing fee, I would guess that there will be more applications than ever…leading to further delays!

Above all, you should know that the Cyber Assistant will not make foolproof the 1023 application, just make it more convenient. The point of the Cyber Assistant is to refer you to previous IRS publications when you arrive to a question that you do not know how to answer. But this still means that you will have to read that IRS publication and try to figure out what they are saying! In some cases, the Cyber Assistant will provide broad advice on certain subjects but that will not replace professional advice to your specific organization and questions. So weigh your options carefully when you are considering whether or not to wait for the Cyber Assistant. 

Information taken from:
Advisory Committee on Tax Exempt and Government Entities
http://www.irs.gov/pub/irs-tege/act_rpt2_part1.pdf