TE/GE Technical Advice Procedures Are Revised

26 CFR 601.201: Rulings and determination letters.

                       TABLE OF CONTENTS

This revenue procedure sets forth procedures for issuing determination letters on the exempt status of organizations under § 501 and 521 of the Internal Revenue Code other than those subject to Rev. Proc. 2016-6, this Bulletin (relating to pension, profit-sharing, stock bonus, annuity, and employee stock ownership plans). Generally, the Service issues these determination letters in response to applications for recognition of exemption from Federal income tax. These procedures also apply to revocation or modification of determination letters. This revenue procedure also provides guidance on the exhaustion of administrative remedies for purposes of declaratory judgment under § 7428.

This revenue procedure includes the procedures for applying for and issuing determination letters using Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. The Service previously released separate revenue procedures for issuing determination letters under Form 1023 and Form 1023-EZ with Rev. Proc. 2015-5 and Rev. Proc. 2015-9. These procedures are now merged together in this revenue procedure.

Description of terms used in this revenue procedure

.01 For purposes of this revenue procedure --

(1) The term "Service" means the Internal Revenue Service.

(2) The term "application" means the appropriate form or letter that an organization must file or submit to the Service for recognition of exemption from Federal income tax under the applicable section of the Internal Revenue Code. See section 3 for information on specific forms.

(3) The term "EO Determinations" means the office in EO Rulings and Agreements of the Service that is primarily responsible for processing initial applications for tax-exempt status.

(4) The term "EO Rulings and Agreements" means the office in EO that is primarily responsible for up-front, customer-initiated activities such as determination applications, taxpayer assistance, and assistance to other EO offices. The EO Rulings and Agreements office included the former EO Technical office. The EO Rulings and Agreements office includes the office of EO Quality Assurance and Processing.

(5) The term "Appeals Office" means any office under the direction and control of the Chief, Appeals. The purpose of the Appeals Office is to resolve tax controversies, without litigation, on a fair and impartial basis. The Appeals Office is independent of EO Determinations and EO Rulings and Agreements.

(6) The term "determination letter" means a written statement issued by EO Rulings and Agreements or an Appeals Office in response to an application for recognition of exemption from Federal income tax under § 501 and 521. This includes a written statement issued by EO Determinations or an Appeals Office on the basis of advice secured from the Office of the Associate Chief Counsel (Tax Exempt and Government Entities) pursuant to the procedures prescribed in Rev. Proc. 2016-2, this Bulletin.

(7) The term "Code" means the Internal Revenue Code.

Updated annually

.02 This revenue procedure is updated annually, but may be modified or amplified during the year.

SECTION 2. NATURE OF CHANGES AND RELATED REVENUE PROCEDURES

Rev. Proc. 2015-5 and Rev. Proc. 2015-9 are merged into one revenue procedure

.01 This revenue procedure merges and updates Rev. Proc. 2015-5 and Rev. Proc. 2015-9 into one annual revenue procedure.

Related revenue procedures

.02 The following revenue procedures are related to Rev. Proc. 2016-5 --

(1) This revenue procedure supplements Rev. Proc. 2016-10, next Bulletin, with respect to the effects of § 7428 on the classification of organizations under §§ 509(a) and 4942(j)(3).

(2) This revenue procedure supplements Rev. Proc. 80-27, 1980-1 C.B. 677, which sets forth procedures under which exemption may be recognized on a group basis for subordinate organizations affiliated with and under the general supervision and control of a central organization.

(3) This revenue procedure supplements Rev. Proc. 72-5, 1972-1 C.B. 709, which provides information for religious and apostolic organizations seeking recognition of exemption under § 501(d).

(4) This revenue procedure supplements Rev. Proc. 2016-4, this Bulletin, which provides general procedures for requests for a determination letter.

(5) This revenue procedure supplements Rev. Proc. 2016-8, this Bulletin, which sets forth the user fees for requests for determination letters.

(6) This revenue procedure supplements Rev. Proc. 2015-17, 2015-7 I.R.B. 599, which provides information regarding procedures for organizations described in § 501(c)(29).

(7) This revenue procedure supplements Rev. Proc. 2014-11, 2014-3 I.R.B. 411, which sets forth procedures for reinstating the tax-exempt status of organizations that have had their tax-exempt status automatically revoked under § 6033(j)(1).

What changes have been made to Rev. Proc. 2015-5 and Rev. Proc. 2015-9?

.03 Notable changes to Rev. Proc. 2015-5 and Rev. Proc. 2015-9 that appear in this year's update include --

(1) The procedures for applying for a determination of exemption under § 501(c)(3) using Form 1023 and Form 1023-EZ are merged into the same revenue procedure. Where the Form 1023 and Form 1023-EZ have different procedures, these distinctions are noted in this revenue procedure.

(2) Section 501(c)(20) was removed from the list of code sections organizations could complete a Form 1024 application to receive exemption because the exemption pursuant to § 501(c)(20) was terminated.

(3) Sections 5 and 12 have been revised to delete language requiring technical advice requests to the Office of Associate Chief Counsel (TEGE) if EO Determinations proposes to recognize the exemption of an organization, or revoke or modify an exempt status letter, contrary to a ruling or technical advice memorandum previously issued concerning the same facts and the same taxpayer, because after requesting and receiving a ruling or technical advice memorandum with regard to the same organization, EO Determinations would not take a contrary action on the same facts as those in the ruling or technical advice memorandum.

(4) The post review procedures of determination letters in Section 9 have been modified, and procedures were added for addressing determination letters reviewed and found to have been issued in error.

(5) In addition to minor non-substantive changes, dates, cross references, and names have been changed to reflect the appropriate annual revenue procedures.

SECTION 3. WHAT ARE THE PROCEDURES FOR REQUESTING RECOGNITION OF EXEMPT STATUS?

In general

.01 An organization seeking recognition of exempt status under § 501 or § 521 is required to submit the appropriate application. In the case of a numbered application form, the current version of the form must be submitted. A central organization that has previously received recognition of its own exemption can request a group exemption letter by submitting a letter application along with Form 8718, User Fee for Exempt Organization Determination Letter Request. See Rev. Proc. 80-27. Form 8718 is not a determination letter application. Attach Form 8718 to the determination letter application.

User fee

.02 An application must be submitted with the correct user fee, as set forth in Rev. Proc. 2016-8, this Bulletin.

Form 1023 application

.03 An organization seeking recognition of exemption under § 501(c)(3) and § 501(e), (f), (k), (n), (q), or (r) must submit a completed Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. In the case of an organization that provides credit counseling services, see § 501(q). In the case of an organization that is a hospital and is seeking exemption under § 501(c)(3), see § 501(r). Notwithstanding the foregoing, eligible organizations may seek recognition of exemption under § 501(c)(3) by submitting a completed Form 1023-EZ, Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code, as described below.

Form 1023-EZ application

.04 An eligible organization, as described in section 3.05, may, but is not required to, seek recognition of tax-exempt status under § 501(c)(3) by submitting a completed Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. The Form 1023-EZ and user fee must be submitted online at www.pay.gov. Paper submissions will not be accepted and will be treated as an incomplete form 1023-EZ as described in section 4.06. An incomplete Form 1023-EZ will not be accepted for processing by the Service even if it has been successfully submitted through www.pay.gov. Alternatively, an eligible organization may seek exemption under § 501(c)(3) by submitting a complete Form 1023.

Eligibility for Form 1023-EZ application

.05 An organizations that is an eligible organization may use Form 1023-EZ to apply for recognition of exemption under § 501(c)(3), unless the organization is designated in section 3.06 as an organization that is ineligible to submit Form 1023-EZ. An organization is an eligible organization if the organization meets all of the following criteria:

(1) The organization has projected annual gross receipts of $50,000 or less in the current taxable year and the next 2 years;

(2) The organization had annual gross receipts of $50,000 or less in each of the past 3 years for which the organization was in existence; and

(3) The organization has total assets the fair market value of which does not exceed $250,000. For purposes of this eligibility requirement, a good faith estimate of the fair market value of the organization's assets is sufficient.

Ineligibility for Form 1023-EZ application

.06 The following organizations are not eligible organizations and must use Form 1023 to apply for recognition of exemption under § 501(c)(3):

(1) Organizations formed under the laws of a foreign country (United States territories and possessions are not considered foreign countries);

(2) Organizations that do not have a mailing address in the United States (territories and possessions are considered the United States for this purpose);

(3) Organizations that are successors to, or controlled by, an entity suspended under § 501(p) (suspension of tax-exempt status of terrorist organizations);

(4) Organizations that are not corporations, unincorporated associations, or trusts, such as a limited liability corporation (LLC);

(5) Organizations that are formed as for-profit entities or are successors to for-profit entities;

(6) Organizations that were previously revoked or that are successors to a previously revoked organization (other than an organization the tax-exempt status of which was automatically revoked for failure to file a Form 990 series return or notice for three consecutive years);

(7) Churches or conventions or associations of churches described in § 170(b)(1)(A)(i);

(8) Schools, colleges, or universities described in § 170(b)(1)(A)(ii);

(9) Hospitals or medical research organizations described in § 170(b)(1)(A)(iii) or § 501(r)(2)(A)(i) (cooperative hospital service organizations described in § 501(e));

(10) Cooperative service organizations of operating educational organizations described in § 501(f);

(11) Qualified charitable risk pools described in § 501(n);

(12) Supporting organizations described in § 509(a)(3);

(13) Organizations that have as a substantial purpose providing assistance to individuals through credit counseling activities such as budgeting, personal finance, financial literacy, mortgage foreclosure assistance, or other consumer credit areas;

(14) Organizations that invest, or intend to invest, 5 percent or more of their total assets in securities or funds that are not publicly traded;

(15) Organizations that participate, or intend to participate, in partnerships (including entities or arrangements treated as partnerships for Federal tax purposes) in which they share profits and losses with partners other than § 501(c)(3) organizations;

(16) Organizations that sell, or intend to sell, carbon credits or carbon offsets;

(17) Health Maintenance Organizations (HMOs);

(18) Accountable Care Organizations (ACOs), or organizations that engage in, or intend to engage in, ACO activities (such as participation in the Medicare Shared Savings Program (MSSP) or in activities unrelated to the MSSP described in Notice 2011-20, 2011-16 I.R.B. 652);

(19) Organizations that maintain, or intend to maintain, one or more donor advised funds;

(20) Organizations that are organized and operated exclusively for testing for public safety and that are requesting a foundation classification under § 509(a)(4);

(21) Private operating foundations; and

(22) Organizations that are applying for retroactive reinstatement of exemption under sections 5 or 6 of Rev. Proc. 2014-11, 2014-3 I.R.B. 411, after being automatically revoked (see section 3.11 for additional information).

Further information regarding these eligibility requirements may be provided in the Instructions for Form 1023-EZ.

Form 1024 application

.07 An organization seeking recognition of exemption under § 501(c)(9) or § 501(c)(17), must submit a completed Form 1024, Application for Recognition of Exemption Under Section 501(a), along with Form 8718, User Fee for Exempt Organization Determination Letter Request. An organization seeking a determination letter from the Service recognizing exemption under § 501(c)(2), (4), (5), (6), (7), (8), (10), (12), (13), (15), (19), or (25) must submit a completed Form 1024, along with Form 8718. In the case of an organization that provides credit counseling services and seeks recognition of exemption under § 501(c)(4), see § 501(q).

Letter application

.08 An organization seeking recognition of exemption under § 501(c)(11), (14), (16), (18), (21), (22), (23), (26), (27), (28), or (29), or under § 501(d), must submit a letter application along with Form 8718.

Form 1028 application

.09 An organization seeking recognition of exemption under § 521 must submit a completed Form 1028, Application for Recognition of Exemption Under Section 521 of the Internal Revenue Code, along with Form 8718.

Form 8871 notice for political organizations

.10 A political party, a campaign committee for a candidate for federal, state or local office, and a political action committee are all political organizations subject to tax under § 527. To be tax-exempt, a political organization may be required to notify the Service that it is to be treated as a § 527 organization by electronically filing Form 8871, Political Organization Notice of Section 527 Status. For details, go to the IRS website at www.irs.gov/polorgs.

Applications for reinstatement after automatic revocation

.11 Organizations that claim exempt status under § 501(c) generally must file annual Form 990 series returns or notices, even if they have not yet received their determination letter recognizing exemption. If an organization fails to file required Form 990 series returns or notices for three consecutive years, its exemption will be automatically revoked by operation of § 6033(j). Such an organization may apply for reinstatement of its exempt status, and such recognition may be granted retroactively, as provided in Rev. Proc. 2014-11. Consistent with the eligibility requirements for using Form 1023-EZ that are set forth in section 3.05, only an organization requesting reinstatement of § 501(c)(3) status under section 4 (streamlined retroactive reinstatement of tax-exempt status for small organizations within 15 months of revocation) or section 7 (reinstatement of tax-exempt status from postmark date) of Rev. Proc. 2014-11 may apply using Form 1023-EZ. An organization requesting reinstatement of § 501(c)(3) status under section 5 (retroactive reinstatement of tax-exempt status within 15 months of revocation) or section 6 (retroactive reinstatement more than 15 months after revocation) of Rev. Proc. 2014-11 must apply using Form 1023.

Requirements for a completed application other than a Form 1023-EZ application

.12 A completed application (other than a Form 1023-EZ), including a letter application, is one that:

(1) is signed by an authorized individual;

(2) includes an Employer Identification Number (EIN);

(3) for organizations other than those described in § 501(c)(3), includes a statement of receipts and expenditures and a

balance sheet for the current year and the three preceding years (or the years the organization was in existence, if less than four years), and if the organization has not yet commenced operations or has not completed one accounting period, a proposed budget for two full accounting periods and a current statement of assets and liabilities; for organizations described in § 501(c)(3), see Form 1023 and Notice 1382;

(4) includes a detailed narrative statement of proposed activities, including each of the fundraising activities of a § 501(c)(3) organization, and a narrative description of anticipated receipts and contemplated expenditures;

(5) includes a copy of the organizing or enabling document that is signed by a principal officer or is accompanied by a written declaration signed by an authorized individual certifying that the document is a complete and accurate copy of the original or otherwise meets the requirements of a "conformed copy" as outlined in Rev. Proc. 68-14, 1968-1 C.B. 768;

(6) if the organizing or enabling document is in the form of articles of incorporation, includes evidence that it was filed with and approved by an appropriate state official (e.g., stamped "Filed" and dated by the Secretary of State); alternatively, a copy of the articles of incorporation may be submitted if accompanied by a written declaration signed by an authorized individual that the copy is a complete and accurate copy of the original copy that was filed with and approved by the state; if a copy is submitted, the written declaration must include the date the articles were filed with the state;

(7) if the organization has adopted bylaws or similar governing rules, includes a current copy; the by-laws need not be signed if submitted as an attachment to the application for recognition of exemption; otherwise, the by-laws must be verified as current by an authorized individual; and

(8) is accompanied by the correct user fee and Form 8718, when applicable.

Requirements for a completed Form 1023-EZ application

.13 A Form 1023-EZ submitted online at www.pay.gov by an eligible organization is complete if it:

(1) includes responses for each required line item of the form, including an accurate date of organization and an attestation that the organization has completed the Form 1023-EZ eligibility worksheet, as in effect on the date of submission, is eligible to apply for exemption using Form 1023-EZ, and has read the Instructions for Form 1023-EZ and understands the requirements to be exempt under § 501(c)(3) as expressed therein;

(2) includes the organization's correct Employer Identification Number (EIN);

(3) is electronically signed, under penalties of perjury, by an individual authorized to sign for the organization (as specified in the Instructions for Form 1023-EZ); and

(4) is accompanied by the correct user fee.

A Form 1023-EZ will not be considered completed if the organization's name and EIN do not match the records in the Service's Business Master File. Furthermore, a Form 1023-EZ submitted by an organization that is not an eligible organization will not be considered completed.

Terrorist organizations not eligible to apply for recognition of exemption

.14 An organization that is identified or designated as a terrorist organization within the meaning of § 501(p)(2) is not eligible to apply for recognition of exemption.

SECTION 4. WHAT ARE THE STANDARDS FOR ISSUING A DETERMINATION LETTER ON EXEMPT STATUS?

Exempt status must be established in application, including attestation and supporting documents

.01 A favorable determination letter will be issued to an organization if its application, including attestations and supporting documents, establishes that it meets the particular requirements of the section under which exemption from Federal income tax is claimed.

Determination letter based solely on administrative record

.02 A determination letter on exempt status is issued based solely upon the facts, attestations, and representations contained in the administrative record.

(1) The applicant is responsible for the accuracy of any factual representations or attestations contained in the application.

(2) Any oral representation of additional facts or modification of facts as represented or alleged in the application must be reduced to writing over the signature of an officer or director of the taxpayer under a penalties of perjury statement.

(3) The failure to disclose a material fact or misrepresentation of a material fact on the application, which includes an incorrect representation or attestation, may adversely affect the reliance that would otherwise be obtained through issuance by the Service of a favorable determination letter. See section 11.02 for additional information.

Exempt status may be recognized in advance of actual operations

.03 For all applications other than a Form 1023-EZ, exempt status may be recognized in advance of the organization's operations if the proposed activities are described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements for exemption pursuant to the section of the Code under which exemption is claimed.

(1) A mere restatement of exempt purposes or a statement that proposed activities will be in furtherance of such purposes will not satisfy this requirement.

(2) The organization must fully describe all of the activities in which it expects to engage, including the standards, criteria, procedures, or other means adopted or planned for carrying out the activities, the anticipated sources of receipts, and the nature of contemplated expenditures.

(3) Where the organization cannot demonstrate to the satisfaction of the Service that it qualifies for exemption pursuant to the section of the Code under which exemption is claimed, the Service will generally issue a proposed adverse determination letter. See also section 7 of this revenue procedure.

(4) For Form 1023-EZ applications, exempt status may be recognized in advance of the organization's operations if the attestations contained in the organization's completed Form 1023-EZ (along with any additional information requested by the Service and provided by the organization) establish that it meets the requirements for exemption under § 501(c)(3).

No letter if exempt status issue in litigation or under consideration within the Service

.04 A determination letter on exempt status ordinarily will not be issued if an issue involving the organization's exempt status under § 501 or § 521 is pending in litigation, is under consideration within the Service, or if issuance of a determination letter is not in the interest of sound tax administration. If the Service declines to issue a determination letter to an organization seeking exempt status under § 501(c)(3), the organization may be able to pursue a declaratory judgment under § 7428, provided that it has exhausted its administrative remedies.

Incomplete application other than Form 1023-EZ application

.05 If an application does not contain all of the items set out in section 3.12 of this revenue procedure, the Service will return it to the applicant for completion.

(1) In the case of an application under § 501(c)(3) that is returned incomplete, the 270-day period referred to in § 7428(b)(2) will not be considered as starting until the date a completed Form 1023 is refiled with or remailed to the Service. If the application is mailed to the Service and a postmark is not evident, the 270-day period will start to run on the date the Service actually receives the completed Form 1023. The same rules apply for purposes of the notice requirement of § 508.

(2) For applications that are returned to the applicant because they are not complete, the user fee will be returned or refunded. See Rev. Proc. 2016-8, section 10, this Bulletin.

Non-acceptance for processing of Form 1023-EZ application

.06 A submitted Form 1023-EZ that is not completed within the meaning of section 3.13 will not be accepted for processing by the Service. The Service may, but is not required to, request additional information under section 4.07 to validate information presented or to clarify an inconsistency in a Form 1023-EZ. An organization whose Form 1023-EZ is not accepted for processing will be notified of the nonacceptance of its application and any user fee that was paid will be returned or refunded. An eligible organization may then submit a properly completed Form 1023-EZ with a new user fee online at www.pay.gov. Alternatively, an eligible organization may apply on a Form 1023.

(1) The Service will not accept for processing a Form 1023-EZ from an organization if the organization has an application for recognition of tax-exempt status other than a Form 1023 (e.g., Form 1024, Application for Recognition of Exemption under Section 501(a)) pending with the Service. An organization will be notified of the non-acceptance of the Form 1023-EZ, and any user fee that was paid with the Form 1023-EZ will be returned or refunded.

(2) The Service will not accept for processing a Form 1023-EZ from an organization if the organization has a Form 1023 pending with the Service that has been assigned for review. See section 6.02(2). An organization will be notified of the non-acceptance of the Form 1023-EZ, and any user fee that was paid with the Form 1023-EZ will be returned or refunded. For Form 1023-EZ applications that are submitted when the organization has a Form 1023 pending with the Service that has not been assigned for review, see section 6.02(1).

Even if application is complete, additional information may be required

.07 Even though an application is complete, the Service may request additional information before issuing a determination letter. A failure to respond to a request for additional information will result in the closure of the application without a determination letter being issued and without a refund of the user fee.

(1) If the application involves an issue where contrary authorities exist, an applicant's failure to disclose and distinguish contrary authorities may result in requests for additional information, which could delay final action on the application.

(2) In the case of an application under § 501(c)(3), the period of time beginning on the date the Service requests additional information until the date the information is submitted to the Service will not be counted for purposes of the 270-day period referred to in § 7428(b)(2).

(3) The Service will select a statistically valid random sample of Form 1023-EZ applications for predetermination reviews, which will result in requests for additional information.

Expedited handling

.08 Procedures for requesting expedited handling.

(1) Applications are normally processed in the order of receipt by the Service. However, expedited processing of an application may be approved where a request is made in writing and contains a compelling reason for processing the application ahead of others. Upon approval of a request for expedited processing, an application will be considered out of its normal order. This does not mean the application will be immediately approved or denied. Circumstances generally warranting expedited processing include:

(a) a grant to the applicant is pending and the failure to secure the grant may have an adverse impact on the organization's ability to continue to operate;

(b) the purpose of the newly created organization is to provide disaster relief to victims of emergencies such as flood and hurricane; and

(c) there have been undue delays in issuing a determination letter caused by a Service error.

(2) An organization may not request expedited handling of a Form 1023-EZ.

May decline to issue group exemption

.09 The Service may decline to issue a group exemption letter when appropriate in the interest of sound tax administration.

SECTION 5. WHAT OFFICE ISSUES AN EXEMPT STATUS DETERMINATION LETTER ?

EO Determinations issues a determination letter

.01 Under the general procedures outlined in Rev. Proc. 2016-4, this Bulletin, EO Determinations is authorized to issue determination letters on applications for exempt status under §§ 501 and 521.

Transition Rule for applications transferred to the former EO Technical office

.02 In limited circumstances, applications for exempt status were transferred to the former EO Technical office for processing.

(1) All the procedures herein apply to pending applications for exempt status that were transferred to the former EO Technical office, including the opportunity for the applicant to request consideration by Appeals of a proposed adverse determination as set forth in Section 7.

(2) An applicant receiving a proposed adverse determination with regard to an application that had been transferred to the former EO Technical office may also request a conference with EO Rulings and Agreements in addition to requesting appeals office consideration as described in Section 7.

Technical advice may be requested in certain cases

.03 At any time during the course of consideration of an exemption application by EO Determinations, if either EO Determinations or the organization believes that its case involves an issue on which there is no published precedent, or there has been non-uniformity in the Service's handling of similar cases, EO Determinations may decide to, or the organization may request that EO Determinations seek technical advice from the Office of Associate Chief Counsel (Tax Exempt and Government Entities). See Rev. Proc. 2016-2, this Bulletin.

SECTION 6. WITHDRAWAL OF AN APPLICATION

Application may be withdrawn prior to issuance of a determination letter

.01 An application may only be withdrawn upon the written request of an authorized individual prior to the issuance of a determination letter. The issuance of a determination letter includes the issuance of a proposed adverse determination letter.

(1) When an application is withdrawn, the Service will retain the application and all supporting documents. The Service may consider the information submitted in connection with the withdrawn request in a subsequent examination of the organization.

(2) Generally, the user fee will not be refunded if an application is withdrawn. See Rev. Proc. 2016-8, section 10, this Bulletin.

Withdrawal of a pending Form 1023 in order to file a Form 1023-EZ

.02 Form 1023-EZ from an organization with a pending Form 1023.

(1) The Service will accept for processing a completed Form 1023-EZ from an eligible organization that has a Form 1023 pending with the Service, provided that the Form 1023 has not yet been assigned for review. The Form 1023-EZ will be treated as a written request for withdrawal of the pending Form 1023, and the Form 1023 will be treated as withdrawn as described in section 6.01. The user fee paid for the Form 1023 will generally not be refunded. See section 6.01. In addition, the filing date of the Form 1023-EZ (not the withdrawn Form 1023) will be treated as the date that the organization provided the notice required under § 508 to the Service. If the filing date of the Form 1023-EZ is within 27 months from the end of the month in which it was organized, the organization may be recognized as exempt from the date it was organized. If it is not, then the organization's exemption, if recognized, will generally be effective from the date the Form 1023-EZ was filed. See section 11.01 below.

(2) The Service will not accept for processing a completed Form 1023-EZ from an eligible organization that has a Form 1023 pending with the Service if the Form 1023 has already been assigned for review. If this section 6.02(2) applies, an organization will be notified of the non-acceptance of the Form 1023-EZ and any user fee that was paid with the Form 1023-EZ will be refunded, as described in section 4.06.

§ 7428 implications of withdrawal of application under § 501(c)(3)

.03 The withdrawal of an application under § 501(c)(3) is not a failure to make a determination within the meaning of § 7428(a)(2) or an exhaustion of administrative remedies within the meaning of § 7428(b)(2).

SECTION 7. WHAT ARE THE PROCEDURES WHEN EXEMPT STATUS IS DENIED?

Proposed adverse determination letter

.01 If EO Rulings and Agreements reaches the conclusion that the organization does not satisfy the requirements for exempt status pursuant to the section of the Code under which exemption is claimed, the Service generally will issue a proposed adverse determination letter, which will:

(1) include a detailed discussion of the Service's rationale for the denial of tax-exempt status; and

(2) advise the organization of its opportunity to appeal the decision and request a conference.

The non-acceptance of an application for incompleteness by the Service under sections 4.05 and 4.06 is not a proposed adverse determination.

Appeal of a proposed adverse determination letter issued by EO Rulings and Agreements

.02 A proposed adverse determination letter issued by EO Rulings and Agreements will advise the organization of its opportunity to appeal the determination by requesting Appeals Office consideration. To do this, the organization must submit a statement of the facts, law and arguments in support of its position within 30 days from the date of the proposed adverse determination letter. The organization must also state whether it wishes an Appeals Office conference.

Final adverse determination letter or ruling where no appeal or protest is submitted

.03 If an organization does not submit a timely appeal of a proposed adverse determination letter issued by EO Rulings and Agreements, a final adverse determination letter will be issued to the organization. The final adverse letter will provide information about the filing of tax returns and the disclosure of the proposed and final adverse letters.

The non-acceptance of an application for incompleteness by the Service under sections 4.05 and 4.06 is not a final adverse determination.

How EO Rulings and Agreements administers an appeal of a proposed adverse determination letter

.04 If an organization submits a protest of the proposed adverse determination letter, EO Rulings and Agreements will first review the protest, and, if it determines that the organization qualifies for tax-exempt status, issue a favorable exempt status determination letter. If EO Rulings and Agreements maintains its adverse position after reviewing the protest, it will forward the protest and the exemption application case file to the Appeals Office. As described in Section 5, for protests of proposed adverse determinations on applications transferred to the former EO Technical office, organizations may request a conference with EO Rulings and Agreements in addition to having its protest and exemption application file forwarded to the Appeals Office.

Consideration by the Appeals Office

.05 The Appeals Office will consider the organization's appeal. If the Appeals Office agrees with the proposed adverse determination, it will either issue a final adverse determination or, if a conference was requested, contact the organization to schedule a conference. At the end of the conference process, which may involve the submission of additional information, the Appeals Office will either issue a final adverse determination letter or a favorable determination letter. If the Appeals Office believes that an exemption or private foundation status issue is not covered by published precedent or that there is non-uniformity, the Appeals Office must request technical advice from the Office of Associate Chief Counsel (Tax Exempt and Government Entities). See Rev. Proc. 2016-2, this Bulletin.

An appeal or protest may be withdrawn

.06 An organization may withdraw its appeal or protest before the Service issues a final adverse determination letter. Upon receipt of the withdrawal request, the Service will complete the processing of the case in the same manner as if no appeal or protest was received.

Appeal and conference rights not applicable in certain situations

.07 The opportunity to appeal a proposed adverse determination letter and the conference rights described above are not applicable to matters where delay would be prejudicial to the interests of the Service (such as in cases involving fraud, jeopardy, the imminence of the expiration of the statute of limitations, or where immediate action is necessary to protect the interests of the Government).

SECTION 8. DISCLOSURE OF APPLICATIONS AND DETERMINATION LETTERS

Sections 6104 and 6110 provide rules for the disclosure of applications, including supporting documents, and determination letters.

Disclosure of applications, supporting documents, and favorable determination letters

.01 The applications, any supporting documents, and the favorable determination letter issued, are available for public inspection under § 6104(a)(1). However, there are certain limited disclosure exceptions for a trade secret, patent, process, style of work, or apparatus, if the Service determines that the disclosure of the information would adversely affect the organization.

(1) The Service is required to make the applications, supporting documents, and favorable determination letters available upon request. The public can request this information by submitting Form 4506-A, Request for Public Inspection or Copy of Exempt or Political Organization IRS Form. Organizations should ensure that applications and supporting documents do not include unnecessary personal identifying information (such as bank account numbers or social security numbers) that could result in identity theft or other adverse consequences if publicly disclosed.

(2) The exempt organization is required to make its exemption application, supporting documents, and determination letter available for public inspection without charge. For more information about the exempt organization's disclosure obligations, see Publication 557, Tax-Exempt Status for Your Organization.

Disclosure of adverse determination letters

.02 The Service is required to make adverse determination letters available for public inspection under § 6110. Upon issuance of the final adverse determination letter to an organization, both the proposed adverse determination letter and the final adverse determination letter will be released pursuant to § 6110.

(1) These documents are made available to the public after the deletion of names, addresses, and any other information that might identify the taxpayer. See § 6110(c) for other specific disclosure exemptions.

(2) The final adverse determination letter will enclose Notice 437, Notice of Intention to Disclose, and redacted copies of the final and proposed adverse determination letters. Notice 437 provides instructions if the organization disagrees with the deletions proposed by the Service.

Disclosure to State officials when the Service refuses to recognize exemption under § 501(c)(3)

.03 The Service may notify the appropriate State officials of a refusal to recognize an organization as tax-exempt under § 501(c)(3). See § 6104(c). The notice to the State officials may include a copy of a proposed or final adverse determination letter the Service issued to the organization. In addition, upon request by the appropriate State official, the Service may make available for inspection and copying the exemption application and other information relating to the Service's determination on exempt status.

The Service does not consider the nonacceptance of an application for incompleteness under sections 4.05 and 4.06 to be a refusal to recognize an organization as tax-exempt.

Disclosure to State officials of information about § 501(c)(3) applicants

.04 The Service may disclose to State officials the name, address, and identification number of any organization that has applied for recognition of exemption under § 501(c)(3).

SECTION 9. REVIEW OF DETERMINATION LETTERS

Determination letters may be post-reviewed

.01 Determination letters issued by EO Determinations may be reviewed by EO Quality Assurance and Processing to assure uniform application of the statutes or regulations, or rulings, court opinions, or decisions published in the Internal Revenue Bulletin.

Procedures for addressing determination letters reviewed and found to have been issued in error

.02 If upon post-determination review EO Quality Assurance and Processing concludes, based on the information contained in the existing application file, that a determination letter issued by EO Determinations was issued in error, the matter will be processed under the revocation procedures pursuant to section 12 of this revenue procedure.

SECTION 10. DECLARATORY JUDGMENT PROVISIONS OF § 7428

Actual controversy involving certain issues

.01 Generally, a declaratory judgment proceeding under § 7428 can be filed in the United States Tax Court, the United States Court of Federal Claims, or the district court of the United States for the District of Columbia with respect to an actual controversy involving a determination by the Service or a failure of the Service to make a determination with respect to the initial or continuing qualification or classification of an organization under § 501(c)(3) (charitable, educational, etc.); § 170(c)(2) (deductibility of contributions); § 509(a) (private foundation status); § 4942(j)(3) (operating foundation status); or § 521 (farmers cooperatives).

Exhaustion of administrative remedies

.02 Before filing a declaratory judgment action, an organization must exhaust its administrative remedies by taking, in a timely manner, all reasonable steps to secure a determination from the Service. These include:

(1) the filing of a completed application Form 1023 (within the meaning of section 3.12) or a completed Form 1023-EZ (within the meaning of section 3.13) under § 501(c)(3), or the request for a determination of foundation status pursuant to Rev. Proc. 2016-10, next Bulletin, or its successor;

(2) in appropriate cases, requesting relief pursuant to Treas. Reg. § 301.9100-1 of the Procedure and Administration Regulations regarding the extension of time for making an election or application for relief from tax;

(3) the timely submission of all additional information requested by the Service to perfect an exemption application or request for determination of private foundation status; and

(4) exhaustion of all administrative appeals available within the Service pursuant to section 7 of this revenue procedure.

Not earlier than 270 days after seeking determination

.03 An organization will in no event be deemed to have exhausted its administrative remedies prior to the earlier of:

(1) the completion of the steps in section 10.02, and the issuance by the Service by certified or registered mail of a final determination letter; or

(2) the expiration of the 270-day period described in § 7428(b)(2) in a case where the Service has not issued a final determination letter, and the organization has taken, in a timely manner, all reasonable steps to secure a determination letter as provided in section 10.02.

(3) The 270-day period referred to in § 7428(b)(2) will not be considered to have started prior to the date a completed application is submitted to the Service. If the Service requests additional information from an organization pursuant to section 4.07, the period of time beginning on the date the Service requests additional information until the date the information is submitted to the Service will not be counted for purposes of the 270-day period referred to in § 7428(b)(2).

Service must have reasonable time to act on an appeal or protest

.04 The steps described in section 10.02 will not be considered completed until the Service has had a reasonable time to act upon an appeal or protest.

Final determination to which § 7428 applies

.05 A final determination to which § 7428 applies is a determination letter, sent by certified or registered mail, which holds that the organization is not described in § 501(c)(3) or § 170(c)(2), is a public charity described in a part of § 509 or § 170(b)(1)(A) other than the part under which the organization requested classification, is not a private foundation as defined in § 4942(j)(3), or is a private foundation and not a public charity described in a part of § 509 or § 170(b)(1)(A).

(1) The non-acceptance of an application for incompleteness under sections 4.05 and 4.06, is not a final determination to which § 7428 applies. In addition, an organization will not have exhausted its administrative remedies by completing the steps in this section if the organization was not eligible to submit Form 1023-EZ as described in sections 3.05 and 3.06.

(2) The withdrawal of an application pursuant to section 6 or the non-acceptance of an incomplete application pursuant to sections 4.05 and 4.06 is not a failure to make a determination within the meaning of § 7428(b)(2).

SECTION 11. EFFECT OF DETERMINATION LETTER RECOGNIZING EXEMPTION

Effective date of exemption

.01 A determination letter recognizing exemption of an organization described in § 501(c), other than § 501(c)(29), is usually effective as of the date of formation of an organization if: (1) its purposes and activities prior to the date of the determination letter have been consistent with the requirements for exemption; (2) it has not failed to file required Form 990 series returns or notices for three consecutive years; and (3) it has filed an application for recognition of exemption within 27 months from the end of the month in which it was organized. Special rules may apply to an organization applying for exemption under § 501(c)(3), (9) or (17). See §§ 505 and 508, and Treas. Reg. §§ 1.508-1(a)(2), 1.508-1(b)(7) and 301.9100-2(a)(2)(iii) and (iv). In addition, special rules apply with respect to organizations described in § 501(c)(29). See Rev. Proc. 2012-11, 2012-7 I.R.B. 368.

(1) If the Service requires the organization to alter its activities or make substantive amendments to its enabling instrument, the exemption will be effective as of the date specified in the determination letter.

(2) If the Service requires the organization to make a nonsubstantive amendment, exemption will ordinarily be recognized as of the date of formation. Examples of nonsubstantive amendments include correction of a clerical error in the enabling instrument or the addition of a dissolution clause where the activities of the organization prior to the determination letter are consistent with the requirements for exemption.

(3) An organization that otherwise meets the requirements for tax-exempt status and the issuance of a determination letter that does not meet the requirements for recognition from date of formation will generally be recognized from the postmark date of its application.

(4) For Form 1023-EZ applications, an eligible organization applying under this revenue procedure that does not submit Form 1023-EZ within 27 months from the end of the month in which it was organized will generally be recognized as exempt from the submission date of its Form 1023-EZ. For this purpose, the submission date of Form 1023-EZ is determined without regard to the submission date of any previously submitted application for recognition of tax-exemption (including a Form 1023-EZ, Form 1023, or Form 1024) that has been withdrawn by the organization or not accepted for processing by the Service. Thus, if an eligible organization that has a Form 1023 pending with the Service files a Form 1023-EZ in accordance with section 6.02(1) outside the 27-month window, it will generally be recognized as exempt from the submission date of its Form 1023-EZ, not from the date it submitted its Form 1023. An organization that believes it qualifies for an earlier effective date may request the earlier date by sending correspondence to the address listed in the Instructions for Form 1023-EZ. The correspondence should include the organization's name, EIN, the effective date the organization is requesting, an explanation of why the earlier date is warranted, and any supporting documents. This correspondence should be sent after the organization receives its determination letter. Alternatively, the organization may complete Form 1023 instead of completing Form 1023-EZ.

(5) For Form 1023-EZ applications, an eligible organization, other than a private foundation, that normally has gross receipts of $50,000 or less is not required to file an annual return, but must furnish notice on Form 990-N providing the information required by § 6033(i). See Rev. Proc. 2011-15, 2011-3 I.R.B. 322. An eligible organization (other than a private foundation) that applies for recognition of exempt status under this revenue procedure is not required to separately notify the Service that it is excepted from the annual filing requirement under § 6033(a) if it is claiming a filing exemption solely on the basis that its gross receipts are normally $50,000 or less. However, if such an organization claims an exception from filing an annual return under § 6033(a) on a basis other than it being an organization (other than a private foundation) that normally has gross receipts of $50,000 or less, it must file a Form 8940, Request for Miscellaneous Determination, with the Service and provide a statement of all of the facts on which its claim is based. A separate user fee will be required when filing the Form 8940. Alternatively, such an organization may file a Form 1023 application and submit information supporting its claimed exemption from filing annual returns as part of that exemption application.

Reliance on determination letter

.02 A determination letter recognizing tax-exemption may not be relied upon by the organization submitting the application if there is a material change, inconsistent with exemption, in the character, the purpose, or the method of operation of the organization, or a change in the applicable law. Also, a determination letter issued to an organization that submitted an application in accordance with this revenue procedure may not be relied upon by the organization submitting the application if it was based on any inaccurate material information submitted by the organization. See section 12.01.

(1) Inaccurate material information includes an incorrect representation or attestation as to the organization's organizational documents, the organization's exempt purpose, the organization's conduct of prohibited and restricted activities, or the organization's eligibility to file Form 1023-EZ.

(2) While the procedures for obtaining a determination letter by submitting a Form 1023 application may differ from those for obtaining a determination letter by submitting a Form 1023-EZ application, grantors and contributors may rely on both determination letters to the same extent. See Rev. Proc. 2011-33, 2011-25 I.R.B. 887.

SECTION 12. REVOCATION OR MODIFICATION OF DETERMINATION LETTER RECOGNIZING EXEMPTION

A determination letter recognizing exemption may be revoked or modified: (1) by a notice to the taxpayer to whom the determination letter was issued; (2) by enactment of legislation or ratification of a tax treaty; (3) by a decision of the Supreme Court of the United States; (4) by the issuance of temporary or final regulations; (5) by the issuance of a revenue ruling, revenue procedure, or other statement published in the Internal Revenue Bulletin; or (6) automatically, pursuant to § 6033(j), for failure to file a required annual return or notice for three consecutive years.

Revocation or modification of a determination letter may be retroactive

.01 The revocation or modification of a determination letter recognizing exemption may be retroactive if there has been a change in the applicable law, or if the organization omitted or misstated a material fact, operated in a manner materially different from that originally represented, or, in the case of organizations to which § 503 applies, engaged in a prohibited transaction with the purpose of diverting corpus or income of the organization from its exempt purpose and such transaction involved a substantial part of the corpus or income of such organization. In certain cases an organization may seek relief from retroactive revocation or modification of a determination letter under § 7805(b). Requests for § 7805(b) relief are subject to the procedures set forth in Rev. Proc. 2016-1, this Bulletin.

(1) Where there is a material change, inconsistent with exemption, in the character, the purpose, or the method of operation of an organization, revocation or modification will ordinarily take effect as of the date of such material change.

(2) In the case where a determination letter is issued in error or is no longer in accord with the Service's position and § 7805(b) relief is granted (see sections 13 and 14 of Rev. Proc. 2016-4, this Bulletin), ordinarily, the revocation or modification will be effective not earlier than the date when the Service modifies or revokes the original determination letter.

(3) A misstatement of material information includes an incorrect representation or attestation as to the organization's organizational documents, the organization's exempt purpose, the organization's conduct of prohibited and restricted activities, or the organization's eligibility to file Form 1023-EZ.

(4) Information provided on an application for recognition of exemption (e.g. Form 1023-EZ, Form 1023, or Form 1024) that has been withdrawn will not be considered for purposes of limiting the retroactive effect of a revocation or modification of a determination letter.

Appeal and conference procedures in the case of revocation or modification of exempt status letter

.02 In the case of a revocation or modification of a determination letter, the appeal and conference procedures are generally the same as set out in section 7 of this revenue procedure. However, appeal and conference rights are not applicable to matters where delay would be prejudicial to the interests of the Service (such as in cases involving fraud, jeopardy, the imminence of the expiration of the statute of limitations, or where immediate action is necessary to protect the interests of the Government). Organizations revoked under § 6033(j) will not have an opportunity for Appeal consideration.

SECTION 13. EFFECT ON OTHER REVENUE PROCEDURES

Rev. Proc. 2015-5 is superseded.

Rev. Proc. 2015-9 is superseded.

SECTION 14. EFFECTIVE DATE

This revenue procedure is effective January 4, 2016.

SECTION 15. PAPERWORK REDUCTION ACT

The collection of information for a letter application under section 3.08 of this revenue procedure has been reviewed and approved by the Office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act (44 U.S.C. § 3507) under control number 1545-0056. All other collections of information under this revenue procedure have been approved under separate OMB control numbers.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.

The collection of this information is required if an organization wants to be recognized as tax-exempt by the Service. The Service needs the information to determine whether the organization meets the legal requirements for tax-exempt status. In addition, this information will be used to help the Service delete certain information from the text of an adverse determination letter before it is made available for public inspection, as required by § 6110.

The time needed to complete and file a letter application will vary depending on individual circumstances. The estimated average time is 10 hours.

Books and records relating to the collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. The rules governing the confidentiality of letter applications are covered in § 6104.

DRAFTING INFORMATION

The principal authors of this Revenue Procedure are Andrew Megosh and Elizabeth Ardoin of the Office of Associate Chief Counsel (Tax Exempt and Government Entities). For additional information, please contact Mr. Megosh or Ms. Ardoin at 202-317-4541.