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IRS Reissues Memo Extending Streamlined Processing Guidelines

FEB. 27, 2015

TEGE-07-0215-0005

DATED FEB. 27, 2015
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Citations: TEGE-07-0215-0005
[Editor's Note: To view the text of the memorandum, including attachments, see .]

 

Affected IRM: IRM 7.20.2 and 7.20.5

 

Expiration Date: May 23, 2015

 

 

MEMORANDUM FOR

 

EXEMPT ORGANIZATIONS DETERMINATIONS AND

 

EXEMPT ORGANIZATIONS DETERMINATIONS QUALITY ASSURANCE

 

 

FROM:

 

Stephen A. Martin

 

Acting Director, Exempt Organizations, Rulings and Agreements

 

 

SUBJECT:

 

Reissued Streamlined Processing Guidelines for All Cases

 

 

This memorandum reissues Interim Guidance Memorandum TEGE-07-0214-02. To assist in the processing and review of applications, the streamlined process developed using the LSSO concepts is extended to Exempt Organizations Determinations (EOD) and Exempt Organizations Determinations Quality Assurance (EODQA). This memorandum expands on the streamlined process outlined in the Memoranda issued January 26, 2014 by Kenneth Corbin, Acting Director, EO, and December 27, 2013 by Karen Schiller, Acting Director, EO Rulings and Agreements.

Specialists have received training on the streamlined concepts developed during the LSSO process (see attachment). The training included assessing risk and using paragraphs in notices developed by the LSSO team (see attachment). To further assist the implementation of this pilot, effective upon issuance of this memo, the following procedures will be implemented and followed:

 

1. Specialists will use the paragraphs as described in the attachment and where appropriate for Letter 1312.

2. The inventory will be allocated among agents based on the number selected to work the cases.

3. The agents will work the cases to completion using the LSSO concepts.

4. To assess the quality of the determinations as well as the effectiveness of training, review will be conducted by EODQA staff where feedback will be provided to the agents and managers and reports issued analyzing overall results.

 

Any questions are to be directed to Jon Waddell, Manager, Rulings and Agreements, Determinations, Area 2.

The contents of the memorandum will be incorporated into IRM 7.20.2 and 7.20.5.

cc:

 

www.irs.gov

 

 

Attachments:

 

Streamlined Application Process Pilot Summary

 

1312 Letter and Section 501(c)(3) Paragraphs for use in the Letter

 

Non-Section 501(c)(3) Paragraphs for use in the Letter

 

* * * * *

 

 

Proposal to Apply the Concepts from the Streamlined

 

Application Process Pilot to Existing Inventory

 

 

Background & Streamlined Application Pilot

Background

In June 2013, the Lean Six Sigma Organization (LSSO), in conjunction with Subject Matter Experts from the TEGE, EO, Determinations, conducted an LSSO Opportunity Assessment to evaluate the effectiveness of the program and to develop opportunities for process improvement.

The assessment concluded that the current process has high inventory, limited resources, inaccurate forms, outdated IRMs, continuously changing procedures, multiple touch points, multiple work streams, and non-standard processes. In addition, inadequate technical tax law training has not equipped the workforce to effectively/efficiently complete the work.

The assessment found that there may be opportunities to streamline the physical flow of work. Additionally, opportunities exist to implement a classification process that efficiently and accurately moves inventory, ensures all resources in the determination process, including the workforce, are developed and deployed appropriately thereby lessening the burden on employees and facilitating consistent and timely determinations.

Streamlined Application Pilot

The initial pilot of the Streamlined Application Process was conducted for three weeks in October and November. The pilot was a beta test, or proof of concept experiment, with Revenue Agents (RA) applying the concepts of a developed draft Form 1023-EZ to existing status 71 and status 51 501(c)(3) general inventory. Form 1023EZ drastically reduces the informational burden for both the taxpayer and the Service through Taxpayer (TP) assurance of meeting the organizational and operational tests through representational attestations. During the pilot, if additional clarification from the TP was needed, standardized paragraphs and language were used to get attestations and to promote consistency of the determination by the RAs. Consequently, the pilot showed that the underlying process was simplified, correspondence with the TP was easier, and case closures were accelerated. At the conclusion of the pilot, feedback from both RAs and TPs was generally positive.

In order to further-measure the effectiveness of the streamlined application process, beginning January 6, 2014, the Lean Six Sigma project team plans to replicate and expand the pilot by applying the lessons learned and concepts from this initial effort to the status 61 inventory. Results of this pilot will be monitored/measured to analyze effectiveness and will be reported to the appropriate management level as required.

 

Concepts of the Streamlined Application Process

 

 

 

 

1. In determining what information to require from applicants in a Form 1023EZ, the LSSO team followed the existing Code and Regulations that require an organization to meet the organizational and operational tests. Also included, was the information needed to accurately-update the Master File such as identifying information and foundation status.

The following is a list of items deemed necessary by the team, and used in the initial pilot:

 

Part I -- Identification of Applicant -- Name, Address, EIN, FYM

Part II -- Organizational Structure -- Conformed Organizing Document

Part III -- Organizational Structure -- 501(c)(3) Purpose and Dissolution

Part IV -- Your Specific Activities -- Meets 501(c)(3) Operational Test

Part V -- Foundation Classification -- Correct Foundation Status

Part VI -- Correct Signature

Correct User Fee

 

2. Based on the previous requirements, the team created a draft Form 1023EZ. Since it was determined that some organizations would not be able to use Form 1023EZ due to the nature of their activities or amount of revenue, an eligibility worksheet was also created.

3. The worksheet was "applied" to the existing 71 and 51 inventories.

4. Standard paragraphs were created for Letter 1312 for missing information. Rather than ask organizations to submit documents and descriptions of items as is typically done while processing cases, the newly-developed paragraphs now request that organizations simply attest that they meet the requirements for exemption under section 501(c)(3) by signing in the appropriate area of the letter. This concept is similar to the requirements on Form 1023EZ where applicants would have simply checked the items to indicate they meet certain requirements.

Note: If an organization would have not met the eligibility criteria to file Form 1023EZ, but the case could be closed on merit or by using the standard paragraphs, then the case was in fact closed. A tracking spreadsheet/tool was developed by the team to capture how many of these cases we closed.

 

The Streamlined Application Pilot

 

1. A team of revenue agents was selected to test the concept on the existing inventory. Half of the agents worked status 71 inventory and the other half worked status 51 inventory. Additionally, half of the agents worked paper cases and the other half worked TEDS cases.

2. Agents were instructed not to think about the case status as they have in the past, but rather to look at the case as though it was being reviewed for the first time and apply the Form 1023EZ concepts.

3. Agents reviewed each case to see if they could check off each item on the Form 1023EZ worksheet:

  • If each item could be checked, the case would be closed.

  • If the case could be closed after securing information using the standard paragraphs created, then Letter 1312 was sent with the appropriate paragraphs.

  • If the case could not be closed by securing the additional information/attestations, then the case was returned to inventory.

 

(Examples of cases returned to inventory were those that had evidence of substantial private benefit or inurement or contained some other evidence of activities contrary to the requirements of IRC 501(c)(3) that could result in a denial of exemption.)

4. Below is an explanation of when each standard paragraph for Letter 1312 was used. (See attachment for the standard paragraphs used)

 

Organizing Document

The organizing document paragraph was sent if there was not an organizing document in the file or if the document in the file was not a filed/conformed copy.

Organizing Document -- Verify Contains Appropriate Provisions

This paragraph verifying (c)(3) language was used with the previous organizing document paragraph if there was not a conformed organizing document in the file. This paragraph was sent so that the organization could verify that its organizing document contained the proper 501(c)(3) provisions.

Organizing Document -- Amend

This paragraph was used when it was evident that the organization's organizing document did not have the correct language and an amendment was needed. This paragraph specifically tells the organization that the organizing document submitted with the application does not meet the requirements.

Operational Test

This paragraph was used when the information in the file did not show the organization met the operational test, but there was no clear evidence of an issue that would cause the organization to be denied exemption. In other words, if clarification was needed regarding the activities of the organization, this paragraph was used. Examples of when this paragraph was used include:

  • If no activity narrative was submitted with the application.

  • If the organization only submitted a brief narrative, such as just stating its mission.

  • If the organization listed a charitable purpose such as "housing," but did not provide specific details or schedules.

 

If there was an indication in the file that the organization did not qualify for exemption then this paragraph was not used and the case was returned to inventory.

Foundation Status Incorrect

This item was used for minor foundation status changes such as 509(a)(1) and 170(b)(1)(A)(vi) to 509(a)(2). However, this might not be appropriate for certain situations where the organization might not agree to the change such as when the organization requests church status and it appears the organization is not a church.

Page 12 Signature

This item was used when a correct signature was needed.

Owe Additional User Fee

This paragraph was used when the correct user fee was needed.

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