Chapter 14 - § 14.2 • ADVERSE DETERMINATIONS IN THE EXEMPTION APPLICATION PROCESS

• Jurisdiction: Colorado

§ 14.2 • ADVERSE DETERMINATIONS IN THE EXEMPTION APPLICATION PROCESS

§ 14.2.1—Application for Determination of Exempt Status

An organization's initial Application for Recognition of Exemption, IRS Form 1023 (or 1023-EZ), is normally processed by the IRS's Exempt Organizations (EO) office located in Cincinnati, Ohio. The IRS restructured its determination letter and rulings program in 2016 and, as a result, initial applications for determination of exempt status are handled by the "EO Determinations" office, which is a part of the larger "EO Rulings and Agreements" office. Rev. Proc. 2018-5, 2018-1 I.R.B. 233, § 1.

The IRS has added significant disclosure and informational requirements to Form 1023 (Rev. Dec. 2017). The expanded form increases the likelihood that I.R.C. § 501(c)(3) exemption issues will be more thoroughly reviewed by the IRS and, ultimately, that an adverse determination will be made after the application process has been completed. As a result, it is important to be mindful of the procedural factors surrounding the determination process.

There is no exception from the annual Form 990 filing requirements for organizations that have not yet received a determination as to exemption. Treas. Reg. § 1.6033-2(c). The Form 990 must indicate that determination of exemption is pending for such organizations, which may effectively shorten the time for the filing of the Form 1023 application for exemption depending upon the fiscal year selected. Id.

§ 14.2.2—Factors Affecting the Timing of Issuance of Determination Letters

Although the Form 1023 revisions were aimed in part at streamlining the application process, recent experience suggests that the IRS issues timely determination letters (i.e., in less than six months) in fewer cases than before the form was expanded. As discussed under the "Exhaustion of Administrative Remedies" subsection in § 14.4.3 of this chapter, a failure of the IRS to rule in 270 days may be considered a final determination for the purposes of the declaratory judgment remedy.

In response to the increased processing time for applications, the IRS established an information page on its website entitled, "Where's my Exemption Application?" Available at www.irs.gov/charities-non-profits/charitable-organizations/wheres-my-application (as of February 2018). This webpage states that the IRS will normally contact applicants within 180 days of receiving the application (90 days for a Form 1023-EZ application) and issue a favorable determination letter, or make a request for additional information via phone, fax, or letter. Id. Applicants who have not been contacted by the IRS within this time period are offered the option of calling a toll-free customer service line with the IRS to obtain a status update for...