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Publication 557

Rulings and Determination Letters(p5)


Public charity status.(p5)

A new section 501(c)(3) organization will be classified as a publicly supported organization and not a private foundation if it can show when it applies for tax-exempt status that it reasonably can be expected to be publicly supported.
An organization must describe fully the activities in which it expects to engage. This includes standards, procedures, or other means adopted or planned by the organization for carrying out its activities, expected sources of funds, and the nature of its contemplated expenses.
When an organization doesn't supply the information previously mentioned under Application Procedures, or fails to furnish a sufficiently detailed description of its proposed activities to permit a conclusion that it will clearly be exempt, a proposed adverse determination letter or ruling may be issued.

Adverse determination.(p5)

A proposed adverse ruling or determination letter will be issued to an organization that has not provided sufficiently detailed information to establish that it qualifies for exemption or if the information provided establishes that it doesn't qualify for exemption. An organization can appeal a proposed adverse ruling or determination letter. See Appeal Procedures, later.

Expedited Handling.(p5)

Exempt Organization Determination letter requests may be eligible for expedited handling under section 4.09 of Rev. Proc. 2017-5.

Effective Date of Exemption(p5)

A ruling or determination letter recognizing exemption is usually effective as of the date of formation of an organization if, the organization submitted the application for recognition of exemption within 27 months of the date of formation and during the period before the date of the ruling or determination letter, its purposes and activities were those required by the law. Upon obtaining recognition of exemption, the organization can file a claim for a refund of income taxes paid for the period for which its exempt status is recognized.
If an organization is required to alter its activities or substantially amend its charter to qualify, the ruling or determination letter recognizing exemption will be effective as of the date specified in the letter. If a nonsubstantive amendment is made, such as correction of a clerical error in the enabling instrument or the addition of a dissolution clause, exemption will ordinarily be recognized as of the date of formation if the activities of the organization before the ruling or determination are consistent with the exemption requirements.
A ruling or determination letter recognizing exemption can't be relied on if there is a material change, inconsistent with exemption, in the character, the purpose, or the method of operation of the organization. Also, a ruling or determination letter can't be relied on if it is based on any inaccurate material factual representations.
For more information about the effective date of exemption, see Rev. Proc. 2017–5, section 6.

Revocation of Exemption(p6)

A ruling or determination letter recognizing exemption may be revoked by:
  1. A notice to the organization to which the ruling or determination letter originally was issued,
  2. Enactment of legislation or ratification of a tax treaty,
  3. A decision of the United States Supreme Court,
  4. Issuance of temporary or final regulations, or
  5. Issuance of a revenue ruling, a revenue procedue, or other statement published in the Internal Revenue Bulletin or Cumulative Bulletin.
  6. Section 6033(j), for failure to file a required annual return or notice, for three consecutive years, automatically.

When revocation takes effect.(p6)

If the organization omitted or misstated a material fact, operated in a manner materially different from that originally represented, or, with regard to organizations to which section 503 applies, engaged in a prohibited transaction (such as diverting corpus or income from its exempt purpose), the revocation or modification may be retroactive.

Material change in organization.(p6)

If there is a material change, inconsistent with exemption, in the character, purpose, or method of operation of the organization, revocation or modification will ordinarily take effect as of the date of that material change.
Relief from retroactivity.(p6)
If a ruling or determination letter was issued in error or the IRS changed its position after issuing a letter or ruling, and if section 7805(b) relief is granted, retroactivity of the revocation ordinarily will be limited to a date not earlier than that on which the original ruling or determination letter was revoked. For more information on requesting section 7805(b) relief, see Rev. Proc. 2017-2, 2017-1 I.R.B. 106.
The determination of the effective date is the same for the revocation or modification of foundation status or operating foundation status unless the effective date is expressly covered by statute or regulations.

Written notice.(p6)

If an EO area manager concludes, as a result of examining an information return or considering information from any other source, that a ruling or determination letter should be revoked or modified, the organization will be advised in writing of the proposed action and the reasons for it.
The organization will also be advised of its right to protest the proposed action by requesting Appeals Office consideration. The appeal procedures are discussed next.