EO Corner is alliantgroup’s periodic newsletter with information for nonprofit tax-exempt organizations and their tax advisors who represent them. Here are this month’s top stories:
EOs Can No Longer be Reclassified by Examination Agents
In recent comments made by Sunita Lough, IRS Commissioner of the Tax Exempt and Government Entities Division, it was revealed that examination agents will no longer attempt to determine the proper classification upon finding that the organization is disqualified under its current classification. While an agent may speak with IRS EO determinations personnel to bring the case to a resolution, the agent cannot grant an organization exemption under a different code section as a matter of course.
In order to receive a new classification, the organization must either reapply for exemption or declare itself exempt under a new section. If the organization chooses to reapply for exemption, it must pay a new user fee. The organization must be sure it pays the correct user fee, otherwise its application could be delayed.
EO Releases Memo Updating PATH Act 2015 Changes to Modification or Revocation Procedures
The IRS TE/GE Division recently released a memo providing updated procedures regarding modification or revocation of exempt status in response to the 2015 PATH Act. In particular, the PATH Act enlarges the scope of declaratory judgment rights under IRC § 7428 to all 501(c) and 501(d) exempt organizations. This change essentially places all revocations of 501(c) and 501(d) organizations under the same procedures and processes as those previously applied to 501(c)(3) organizations.
As a result of this change, modifications of tax-exempt status no longer apply. Instead, the IRS will revoke, or treat as a revocation for IRC § 7428 purposes, any organization’s tax-exempt status that no longer qualifies under the code, regardless of whether it was granted or self-declared. The memorandum also extends to disqualifications of tax-exempt status on a yearly basis for organizations covered by IRC §§ 501(c)(12) or (15) that fail either the 85 percent member income test or the gross receipts test for a specific tax year. The memorandum also lays out the steps an agent is required to follow upon determining that an organization no longer qualifies for tax exemption as a result of an audit.
Industry Issue Resolution Program Extended to TE/GE
In recently released Revenue Procedure 2016-19, the IRS extended the Industry Issue Resolution (IIR) Program to the TE/GE Division. Previously, the program had been available only for small business and self-employed (SB/SE) and large business and international (LBI) taxpayers. The IIR Program serves to identify and resolve frequently contested or time-intensive issues common to a significant number of taxpayers. Functionally, the IIR Program attempts to resolve these issues through pre-filing guidance, rather than through examination. The types of issues the IIR Program is intended to address generally have a number of common characteristics, including uncertainty of the proper tax treatment of a common factual situation, repetitive examination of the same issue, and issues involving extensive factual development, among other factors. If a taxpayer would like to participate in the IIR Program, the taxpayer must make a request during the calendar year for the particular issue. The IRS will publish an annual report regarding which requests were denied and which were granted, and will also publish the IRS contact regarding a specific IIR request. As a result of an issue being accepted into the IIR Program, the IRS may take a number of actions, including issuing new guidance, whether in the form of a notice, revenue procedure, revenue ruling, or regulation, or may result in an administrative procedural change.
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