Let’s look five years out. How much nonprofit income can you envision bringing in from all sources (donations, grants, etc.)? If it’s more than $50,000 jump down to Premium Plan.
Every nonprofit starts out as a small organization, but in your dreams and hopes for your nonprofit, do you plan to be large or small. Over or under $50,000 in total nonprofit income per year from all sources (donations, grants, gifts in kind). If you never see yourself exceeding $50,000, then you can probably use the Economy-EZ Plan (if not a church, school or private operating foundation). If you’re not sure, let’s talk about each one. If sure, skip discussion of the other plan.
There are virtually no limitations on the Premium Plan, especially no limitations on income. Slightly more expensive and more work, but once it’s behind you, you can fly ahead knowing that your nonprofit has been prepared by a skilled Harvard Lawyer who has been doing this for 39+ years. As to grants, you give lots of information to the IRS, and the IRS very seriously vets you (that’s a good thing). Once you have passed through the IRS with the Premium plan, the grant maker can have confidence that giving you a grant will be a good investment. (The grant maker is protective of his money.)
To qualify for the Economy-EZ Plan, you must answer NO to all 30 of the questions below (or also found on the Form 1023-EZ Eligibility Worksheet).
Question No. 1 basically limits you to $50,000 of nonprofit income from all sources (donations, grants, gifts in kind, etc.) for the next three years. HOWEVER, because of the difficulty of predicting the future***, we recommend that you ask yourself or your group whether you EVER plan to bring in more than $50,000 per year. Since you sign the application under penalty of perjury, many clients prefer to protect themselves and choose the Premium and never have to think of the amount of income they are bringing in. Slightly more expensive and more work, but once it’s done, you have a clear field ahead of you. The sky’s the limit. (If you truly are a small organization and would never consider being larger, the Economy (EZ) Plan is the way to go.)
***As Yogi Berra famously said, “It’s tough to make predictions, especially about the future.”
The other 29 questions contain many restrictions for the Economy-EZ: churches, schools, and private operating foundations cannot use the Economy-EZ.
Getting grants with the EZ Plan: Many grant makers are reluctant to give grants to those who have gone through the IRS with the Economy-EZ Plan because the IRS has not properly examined and vetted these nonprofits to assure themselves about their activities. Also, if you apply for a grant, the grant maker cannot look at your application and get a full understanding of what you want to do with your nonprofit and how you want to do it. Plus, anything you tell the grant maker along these lines outside of the application will not be under penalty of perjury, so the veracity of what you tell the grant maker may be in doubt. The IRS takes comparatively little information on the Economy-EZ as compared with the Premium. In the competitive world of grants, you may be at a grave disadvantage if you use the Economy-EZ to get your 501c3 status.
We recently had a client who chose the Economy-EZ and ended up with three sets of questions from the IRS and an extra two months of delay because she chose the Economy-EZ with its relatively little information from the applicant. Had she chosen the Premium plan, these questions would have been answered in the original application. We rarely get any questions back from the IRS on the long form Premium.
That said, those with little money may still consider the Economy-EZ plan rather than being discouraged and not moving forward with their dreams.