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Not-for-Profit Tax Alert: IRS Issues Revised Requirements for Tax Exemption Recognition


Synopsis:
The IRS recently issued revised requirements for certain Section 501(c) organizations applying for determination letters of tax-exempt status. In Revenue Procedure 2013-9 the IRS outlines three requirements a 501(c) organization other than a 501(c)(3), 501(c)(9), 501(c)(17), or 501(c)(29) must meet in order to be recognized by the IRS as  tax-exempt as of the date of formation.

Suggested Action:
Review this Alert and Rev. Proc. 2013-9 to determine whether your 501(c) organization meets these new requirements and whether any changes should be made.

Issue:
The IRS revised rules for recognizing tax-exempt status for 501(c) organizations, other than 501(c)(3), 501(c)(9), 501(c)(17), and 501(c)(29) organizations. Prior to this Revenue Procedure, IRS determination letters would typically recognize these organizations that otherwise met the requirements for exemption as tax-exempt from the date of formation, regardless of how much time had passed between the date of formation and the date of application for tax-exempt status. In the new Revenue Procedure, IRS determination letters will recognize tax exemption from the date of formation only if:

  • Its purposes and activities prior to the date of the determination letter or ruling have been consistent with the requirements for exemption;
  • The organization has not failed to file its required Form 990 returns or notice for three consecutive years; and
  • The organization has filed an application for recognition of exemption within 27 months from the end of the month in which it was organized.


Exempt status for qualifying organizations that do not meet the 27-month filing requirement will be recognized as of the postmark date of the application.

Special rules for applying for tax exemption apply to 501(c)(3), 501(c)(9), 501(c)(17), and 501(c)(29) organizations.

The IRS stated in its 2012 work plan that it is reviewing 501(c)(4), (5), and (6) organizations that have not applied for an IRS determination letter to determine their level of compliance with applicable tax laws. The IRS stated that it will send a comprehensive questionnaire to organizations based on Form 990 filings to assess compliance in this area.

Contact:
For more information, please visit the CohnReznick Not-for-Profit webpage and contact Phil Royalty, Director at 916-930-5222, or Thomas Lanning, Partner, at 646-834-4108.

 

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