Electronic filing of Form 1024, Application for Recognition of Exemption Under Section 501(a) or Section 521 of the Internal Revenue Code, via https://www.pay.gov was made mandatory upon the release of Revenue Procedure 2022-08[1] on January 3, 2022. A limited 90-day transition period will allow for some submissions to continue to be submitted on paper forms for a limited time.

The form is filed by the following organizations looking for recognition as a tax-exempt entity:

• Entities described in § 501(a) (other than those described in § 501(c)(3) or § 501(c)(4)) and

• Entities described in § 521 (for organizations seeking a determination letter recognizing exempt status who submit Form 1024 in lieu of filing Form 1028 along with Form 8718)[2]

Note: Organizations applying for §501(c)(3) exempt status on Form 1023 have been required to file that form electronically since early 2020 per Revenue Procedure 2020-8.

The procedure also modifies which individuals or representatives are allowed to sign the Form 1024 to allow more individuals associated with the organization to sign the form, but removes the ability to appoint a representative via a power of attorney to sign the application for the organization.

The IRS quietly added more guidance in the virtual currency arena to their frequently asked questions (FAQ), this time adding new questions and answers related to how charities should deal with the receipt of a virtual currency donation, as well as how the donor deals with the donation.[1]

To retain status as a §501(c)(3) charitable organization, an entity must not only have been organized for charitable purposes (a requirement for initial qualification), it must also be operated exclusively for charitable purposes in order to retain that status.  A failure on the second test caused the organization in the case of Giving Hearts, Inc. v. Commissioner, TC Memo 2019-94[1] to retroactively have its status revoked by the IRS.

The case involves an attempt by a business that was negatively impacted by the National Do Not Call Registry, a program conducted jointly by the Federal Trade Commission and the Federal Communications Commission, to blunt the impact of that program.  The business, Windows Plus, relied primarily upon telemarketing calls to sell replacement windows and other home improvement services to homeowners.

The IRS has adopted as final regulations the proposed regulations issued in June of 2014 that allowed for a streamlined application for tax-exempt status under IRC §501(c)(3) in T.D. 9819.  These same regulations were issued in 2014 as temporary regulations which, with the issuance of the same regulations in final form, are now withdrawn.

The streamlined application process takes place entirely online, with the organization filling in Form 1023-EZ online at http://www.pay.gov.

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The IRS announced in News Release IR-2017-41 that it has now made available lists of approved exemption applications that were obtained using Form 1023-EZ, Streamlined Application for Recognition of Exemption.

The information, provided in the form of an Excel spreadsheet, provides approved applications by year beginning with mid-2014 when the streamlined form was first released.  The IRS will release updated information quarterly.

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In PLR 201652029 the IRS was asked to grant an organization a tax exemption under §501(c)(3).  The organization was one formed to grant annual scholarships to graduating seniors of a particular high school who met certain criteria.

Initially this seems like a reasonable request since the organization’s purpose was to further education, and it was going to grant scholarships based on merit-based criteria.  But it turns out that criteria caught the IRS’s attention when the IRS looked at applying those criteria to what had actually taken place in the past.

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Organizations that wish to qualify as a tax-exempt organization under IRC §501(c)(3) must serve a public rather than private interest pursuant to Reg. §1.501(c)(3)-1(d)(ii).  That issue tripped the application of the organization that is the subject of PLR 201651016.

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In the case of Community Education Foundation v. Commissioner, T.C. Memo. 2016-223 the taxpayer was contesting the IRS’s revocation of the organization’s tax exempt status under IRC §501(c)(3).  The IRS was not alleging that the organization carried on something that wasn’t in line with its exempt purpose, but rather simply that the organization was actually carrying on any purpose.

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The organization in LTR 201649017 was found to be pursuing too narrow of a business interest to qualify as an exempt business league under IRC §501(c)(6), thus its request for exemption was denied.

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In PLR 201645017 the IRS denied tax-exempt status to a religious organization that established a coffee shop that it planned to use to spread a religious message to members of the community.  The exemption was denied because the IRS determined, under the facts of the case, that a substantial portion of the organization’s operations would be devoted to operating the coffee shop in a commercial manner.

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The private inurement prohibition applies to an exempt organization, even if that organization is clearly serving an individual that would otherwise been a reasonable recipient of benefits from a charity.  The IRS pointed that out in denying an application for tax exempt status in PLR 201637017.

Private inurement is an issue for many potential organizations that a client may be motivated to form, as often a personal experience and a problem of a specific individual will be the genesis of the idea to form the organization.  But the regulations under §501(c)(3) provide a strict prohibition on “private inurement” as the IRS points out in the ruling:

Treas. Reg. Section 1.501(c)(3)-1(c)(2) states regarding the distribution of earnings that an organization is not operated exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the benefit of private shareholders or individuals.

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In Section 405 of the Protecting Americans from Tax Hikes, organizations that intend to operate as organizations exempt from tax uner §501(c)(4) must notify the IRS of that intent. [IRC §506] The IRS has issued temporary regulations [T.D. 9775] that were also issued as proposed regulations [REG-101689-16] to implement these rules, along with a Revenue Procedure [Revenue Procedure 2016-41] outling the notification procedure.

As a tax-exempt organization it’s a bad situation to lose your exemption for a failure to file the required tax forms for three consecutive years.  But, as the association that requested reinstatement of their status as a §501(c)(6) organization discovered in PLR 201622033, it’s worse to discover that the IRS believes you never really were qualified to be treated as such an organization.

In Revenue Procedure 2016-32 the IRS announced a reduction in the 2016 user fee for certain exempt organization applications effective July 1, 2016.

The fee for organizations filing Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code will be reduced from $400 to $275. 

California’s law requiring providing the California Attorney General with an unredacted list of donors was held constitutional by the Ninth Circuit, but less than a year later a District Court in the same Circuit found that the ruling only found the law not “facially unconstitutional” but that using an “as-applied” test the law was unconstitutional, granting again an injunction against its enforcement.

But, as we’ll describe below, the rulings are not as contradictory as they might appear when reading just the headlines.

An issue that often arises in the area of exempt organizations is that they are governed by a number of special rules that, if violated, will cause an organization to lose its exempt status.  And often these organizations, as circumstances change, end up taking actions that run smack into these problems.

This was case for the organization whose loss of exempt status is detailed in PLR 201612014.  The organization was organized as a social organization under IRC §501(c)(7) to provide trap shooting, hunter safety and clubhouse activities to its members.

The IRS announced in the February Exempt Organization Update email that small tax exempt organizations filing the “e-Postcard” Form 990-N online will see changes in how they file in 2016.

Effective February 29, 2016 submissions of the Form 990-N will now be handled directly by the IRS via the irs.gov site.   Previously the form had been submitted through the website of the Urban Institute.

Organizations will need to complete a short registration process with the IRS before being able to use the new site.

An organization that ran a farmer’s market was found by the IRS to not qualify as a tax exempt §501(c)(3) organization in Private Letter Ruling 201601014. 

The organization operates a marketplace where farmers, businesses and artisans sell their goods directly to the public.  It also organizes special events where local craft vendors sell their goods, cooking demonstrations and other educational programs for adults, monthly educational events for children, and space at the market for local non-profits to promote their activities.