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D.C. Drops IRS Affirmation Requirement for EOs

Posted on May 17, 2019

Organizations seeking or renewing tax-exempt status in the District of Columbia can stop worrying about a new requirement that many consider burdensome.

The District’s Office of Tax and Revenue (OTR) confirmed May 16 that entities that received federal exemption more than four years ago will no longer have to submit IRS letters affirming that status when applying or reapplying for a D.C. exemption.

Although the D.C. online exemption application retains a field for uploading an IRS affirmation letter, organizations do not have to complete it.

Instead, the OTR will confirm an organization’s federal exemption by checking Publication 78 data on the IRS’s Tax-Exempt Organization Search webpage. A group not listed on the webpage will still have to prove its federal exempt status to obtain a D.C. exemption.

John Pomeranz of Harmon Curran Spielberg & Eisenberg LLP said a March 15 letter he and other attorneys sent the OTR may have contributed to the requirement’s elimination. The signatories said the IRS affirmation rule, enacted this year, was “unduly burdensome” for organizations that must renew their D.C. exemptions many years after receiving their federal determinations.

The attorneys added that an IRS affirmation letter is not the most reliable evidence of continued federal exemption and that obtaining one often takes more than 30 days.

Pomeranz said the OTR’s reversal is a small step in rationalizing the city’s regulation of exempt organizations.

For one thing, it’s unclear why the District, unlike other jurisdictions, makes organizations regularly reapply for exempt status, Pomeranz told Tax Notes May 15.

The city also should stop requiring IRS determination letters from organizations that aren’t required to obtain them because they’re allowed to declare themselves exempt at the federal level, such as section 501(c)(4) and section 501(c)(6) entities, Pomeranz said.

The affirmation letter requirement caused a stir last winter when D.C. nonprofits couldn’t obtain the letters because of the federal government shutdown.

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