We’re Watching and You Should Too

As KNN has gotten more engaged in public policy activities over the years, I’ve learned A LOT.  One of the biggest lessons I continue to learn is that in public policy (as in life), things don’t always go “our” way.  Despite best efforts and common sense, bad legislation is passed; good, needed legislation is overlooked; concerns are ignored; reform never happens; gridlock continues – the list goes on and on.  For someone like me, who is easily riled up and has been accused of being a bit controlling on more than one occasion, the world of public policy and advocacy can be really frustrating.  But I’m learning.  It’s a process.

In my last blog, I shared many of the concerns being voiced about the IRS’ proposed 1023-EZ.  Despite active outreach from KNN and many of our state association of nonprofit peers across the country, leaders of the foundation community, legislative leaders (including here in Kentucky) and state regulatory officials, the IRS implemented the Form 1023-EZ effective July 1, 2014.  This announcement has been met with some applause and lots of concern.

The good news is that the IRS did listen to some of the concerns and revised the eligibility threshold for gross receipts and lowered the asset ceiling so that only the smallest organizations will utilize the 1023-EZ.  But the IRS predicts that 70% of all applicants will be eligible for the new form and they believe that “the streamlined form will allow us to devote more compliance activity on the back end to ensure groups are actually doing the charitable work they apply to do.”  The problem with this is that, as several reports have stated, because exemption for Form 1023-EZ applicant is all but automatic, anyone who attests to meeting the requirements (whether they do or not) can now fairly easily obtain their tax-exempt 501 (c) 3 status.  And as one report stated, “Once they obtain their determination letter, fraudsters will be able to use and abuse that status with impunity for several years . . . giving an abusive Form 1023-EZ applicant years to rip off the pubic before it is shut down.

I remain concerned about the new 1023-EZ application process because the work of only a few “fraudsters” can easily damage the credibility of our sector and this matters to all of us.  And while the regular Form 1023 is tedious and needed revision, I do believe applying for 501 (c) 3 status should be a thoughtful process.  Unfortunately, KNN receives lots of calls from folks wanting to start a nonprofit and they honestly have not given it much thought (you know – ‘we’re going to get one of those big grants to fund everything’).

But the decision has been made and KNN is working to update our website resources for folks interested in applying for their tax-exempt status with the new information, and we’ll be hosting educational opportunities to be sure everyone is up to speed on the changes.  And more than ever, we’ll be promoting our Principles & Practices for Nonprofit Excellence in Kentucky Guide and Workbook, as well as the KNN members participating in our Best Practices Partnership  – highlighting their commitment to using best practices to achieve accountability and transparency.

To be certain, KNN’s priority is to advance and protect the interests of the nonprofit sector so that your organization can best serve your community and achieve your mission.  So we’ll be keeping a close eye on the impact of this decision, and I hope you’ll be watching too – – please let us hear from you.

DC headshot 2013

Danielle Clore

Executive Director

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