Rulings and Determination Letters

A ruling or determination letter will be issued to your organization if its application and supporting documents establish that it meets the particular requirements of the section under which it is claiming exemption. However, the IRS will not ordinarily issue rulings or determination letters recognizing exemption if an issue involving the organization's exempt status is pending in litigation or is under consideration within the IRS.

Advance ruling.    A ruling or determination letter may be issued in advance of operations if your organization can describe its proposed operations in enough detail to permit a conclusion that it will clearly meet the particular requirements of the section under which it is claiming exemption. A restatement of the organization's purpose or a statement that it will be operated in furtherance of that purpose will not satisfy this requirement. The 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 does not 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 record of actual operations may be required before a ruling or determination letter is issued.

Adverse determination.    If an organization is unable to describe fully its purposes and activities, resulting in a refusal by the IRS to issue a ruling or determination letter, that refusal is considered an adverse determination, which the organization can appeal. See Appeal Procedures, later.

Effective Date of Exemption

A ruling or determination letter recognizing exemption is usually effective as of the date of formation of an organization if, during the period before the date of the ruling or determination letter, its purposes and activities were those required by the law. (See Application for Recognition of Exemption in chapter 3 for the special rule for organizations applying for recognition of exemption under section 501(c)(3).) Upon obtaining recognition of exemption, the organization may 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 may not be relied upon if there is a material change, inconsistent with exemption, in the character, the purpose, or the method of operation of the organization.

Revocation or Modification of Exemption

A ruling or determination letter recognizing exemption may be revoked or modified 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 procedure, or other statement published in the Internal Revenue Bulletin or Cumulative Bulletin.

When revocation takes effect.   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.   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.   If a ruling or determination letter was issued in error or is no longer in accord with the holding of the IRS, and if section 7805(b) relief is granted, retroactivity of the revocation or modification ordinarily will be limited to a date not earlier than that on which the original ruling or determination letter was modified or revoked. For more information on requesting section 7805(b) relief, see Revenue Procedure 2001-4 (or later update).

Foundations.   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.   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.

Appeal Procedures

If an organization applies for tax-exempt status and receives an adverse determination letter, the organization will be advised of its right to protest the determination by requesting Appeals Office consideration. The organization must send its protest to the EO area manager of the office issuing the adverse letter. The letter must be sent within 30 days from the date of the adverse determination letter and must state whether it wishes an Appeals Office conference.

Representation.    A principal officer or trustee may represent an organization at any level of appeal within the IRS. Or, the organization may be represented by an attorney, certified public accountant, or individual enrolled to practice before the IRS.

If the organization's representative attends a conference without a principal officer or trustee, the representative must file a proper power of attorney or a tax information authorization before receiving or inspecting confidential information. Form 2848, or Form 8821, Tax Information Authorization, as appropriate (or any other properly written power of attorney or authorization), may be used for this purpose. These forms may be obtained from the IRS. For more information, get Publication 947, Practice Before the IRS and Power of Attorney.

Appeals Office Consideration

The protest to the Appeals Office should be filed with the local Appeals Office considering the application and contain all of the following information.

1. The organization's name, address, and employer identification number.
2. A statement that the organization wants to protest the determination.
3. The date and symbols on the determination letter.
4. A statement of facts supporting the organization's position in any contested factual issue.
5. A statement outlining the law or other authority the organization is relying on.
6. A statement as to whether a conference at the Appeals Office is desired.

The statement of facts (item 4) must be declared true under penalties of perjury. This may be done by adding to the protest the following signed declaration:

	Under penalties of perjury, I declare that I have examined the statement of facts presented in this protest and in any accompanying schedules and statements and, to the best of my knowledge and belief, it is true, correct, and complete.
	Signature.

substitute declaration must be included, stating:

1. That the representative prepared the protest and accompanying documents, and
2. Whether the representative knows personally that the statements of fact contained in the protest and accompanying documents are true and correct.

Be sure the protest contains all of the information requested. Incomplete protests will be returned for completion.

If a conference is requested, it will be held at the Appeals Office, unless the organization requests that the meeting be held at a field office convenient to both parties.

The Appeals Office, after considering the organization's protest as well as information presented in any conference held, will notify the organization of its decision and issue an appropriate determination letter. An adverse decision may be appealed to the courts (discussed later).

Appeals offices must request technical advice from EO Technical, IRS Headquarters, on any exempt organization issue concerning qualification for exemption or foundation status for which there is no published precedent or for which there is reason to believe that nonuniformity exists. If an organization believes that its case involves such an issue, it should ask the Appeals Office to request technical advice.

Any determination letter issued on the basis of technical advice from Headquarters may not be appealed to the Appeals Office for those issues that were the subject of the technical advice.

Headquarters Consideration

If an application is referred to IRS Headquarters for issuance of a ruling and an adverse ruling is issued, the organization will be informed of the basis for the conclusion, its right to file a protest within 30 days, and its right to have a conference at Headquarters.

Administrative Remedies

In the case of an application under section 501(c)(3) of the Code, all of the following actions, called administrative remedies, must be completed by your organization before an unfavorable ruling or determination letter from the IRS can be appealed to the courts.

1. The filing of a substantially completed application Form 1023 (described earlier in this chapter) or the filing of a request for a determination of foundation status (see Private Foundations and Public Charities in chapter 3).
2. In the case of a late-filed application, requesting relief under section 301.9100 of the Income Tax Regulations regarding applications for extensions of time for making an election or application for relief from tax (see Application for Recognition of Exemption in chapter 3).
3. The timely submission of all additional information requested to perfect an exemption application or request for determination of private foundation status.
4. Exhaustion of all administrative appeals available within the IRS, including protest of an adverse ruling in the Headquarters original jurisdiction exemption application cases.

The actions just described will not be considered completed until the IRS has had a reasonable time to act upon the appeal or protest, as the case may be.

An organization will not be considered to have exhausted its administrative remedies before the earlier of:

1. The completion of the steps just listed and the sending by certified or registered mail of a notice of final determination, or
2. The expiration of the 270-day period in which the IRS has not issued a notice of final determination and the organization has taken, in a timely manner, all reasonable steps to secure a ruling or determination.

270-day period.    The 270-day period will be considered by the IRS to begin on the date a substantially completed Form 1023 is sent to the IRS. See Application Procedures, earlier, for information needed to complete Form 1023.

If the application does not contain all of the required items, it will not be further processed and may be returned to the applicant for completion. The 270-day period, in this event, will not be considered as starting until the date the application is remailed to the IRS with the requested information, or, if a postmark is not evident, on the date the IRS receives a substantially completed application.

Appeal to Courts

If the IRS issues an unfavorable determination letter or ruling to your organization and you have exhausted all the administrative remedies just discussed, your organization can seek judicial remedies.

For example, if your organization has paid the tax resulting from the unfavorable determination and met all other statutory prerequisites, it can file suit for a refund in a United States District Court or the U.S. Court of Federal Claims. Or, if your organization elected not to pay the tax deficiency resulting from the unfavorable determination and met all other statutory prerequisites, it can file suit for a redetermination of the tax deficiencies in the United States Tax Court. For more information on these types of suits, get Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund.

In certain situations, your organization can file suit for a declaratory judgment in the U.S. District Court for the District of Columbia, the U.S. Court of Federal Claims, or the U.S. Tax Court. This remedy is available if your organization received an adverse notice of final determination, or if the IRS failed to make a timely determination on your initial or continuing qualification or classification as an exempt organization. However, your exempt status claim must be as:

• An organization qualifying under section 501(c)(3),
• An organization to which a deduction for a contribution is allowed under section 170(c)(2),
• An organization other than a private foundation under section 509, or
• A private operating foundation under section 4942(j)(3).

Adverse notice of final determination.   The adverse notice of final determination referred to above is a ruling or determination letter sent by certified or registered mail, holding that your organization:

• Is not described in section 501(c)(3) or section 170(c)(2) of the Code,
• Is a private foundation as defined in section 4942(j)(3), or
• Is a public charity described in a part of section 509 or section 170(b)(1)(A) other than the part under which your organization requested classification.

Favorable court rulings - IRS procedure.   If a suit results in a final determination that your organization is exempt from tax, the IRS will issue a favorable ruling or determination letter, provided your organization has filed an application for exemption and submitted a statement that the underlying facts and applicable law are the same as in the period considered by the court.

Group Exemption Letter

A group exemption letter is a ruling or determination letter issued to a central organization recognizing on a group basis the exemption under section 501(c) of subordinate organizations on whose behalf the central organization has applied for recognition of exemption.

A central organization is an organization that has one or more subordinates under its general supervision or control.

A subordinate organization is a chapter, local, post, or unit of a central organization. A central organization may be a subordinate itself, such as a state organization that has subordinate units and is itself affiliated with a national (central) organization.

A subordinate organization may or may not be incorporated, but it must have an organizing document. A subordinate that is organized and operated in a foreign country may not be included in a group exemption letter. A subordinate described in section 501(c)(3) may not be included in a group exemption letter if it is a private foundation described in section 509(a).

If your organization is a subordinate one controlled by a central organization (for example, a church, the Boy Scouts, or a fraternal organization), you should check with the central organization to see if it has been issued a group exemption letter that covers your organization. If it has, you do not have to file a separate application unless your organization no longer wants to be included in the group exemption letter.

If the group exemption letter does not cover your organization, ask your central organization about being included in the next annual group ruling update that it submits to the IRS.

Central Organization Application Procedure

If your organization is a central organization with affiliated subordinates under its control, it may apply for a group exemption letter for its subordinates, provided it has obtained recognition of its own exemption. You should make the application for such subordinates by letter instead of submitting either Form 1023 or 1024. This procedure relieves each of the subordinates covered by a group exemption letter from filing its own application. A central organization obtains its own recognition of exemption by sending its application to the IRS address shown on Form 8718 for the area in which the central organization's principal place of business or principal office is located.

If the central organization has previously obtained recognition of its own exemption, it must indicate its employer identification number, the date of the letter recognizing its exemption, and the IRS office that issued it. It need not forward documents already submitted. However, if it has not already done so, the central organization must submit a copy of any amendment to its governing instruments or internal regulations as well as any information about changes in its character, purposes, or method of operation.

Employer identification number.    If the central organization does not have an employer identification number (EIN), it must send a completed Form SS-4 with its exemption application. Each subordinate must have its own EIN even if it has no employees. The central organization must send with the group exemption application a completed Form SS-4 on behalf of each subordinate not having an EIN.

Information required for subordinate organizations.    In addition to the information required to obtain recognition of its own exemption, the central organization must submit information for those subordinates to be included in the group exemption letter. The information should be forwarded in a letter signed by a principal officer of the central organization setting forth or including as attachments the following.

1. Information verifying that the subordinates:
   1. Are affiliated with the central organization,
   2. Are subject to its general supervision or control,
   3. Are all eligible to qualify for exemption under the same paragraph of section 501(c), though not necessarily the paragraph under which the central organization is exempt,
   4. Are not private foundations if the application for a group exemption letter involves section 501(c)(3),
   5. Are all on the same accounting period as the central organization if they are to be included in group returns, and
   6. Are organizations that have been formed within the 15-month period preceding the date of submission of the group exemption application if they are claiming section 501(c)(3) status and are subject to the requirements of section 508(a) and wish to be recognized as exempt from their dates of creation (a group exemption letter may be issued covering subordinates, one or more of which have not been organized within the 15-month period preceding the date of submission, if all subordinates are willing to be recognized as exempt only from the date of application).
2. A detailed description of the purposes and activities of the subordinates, including the sources of receipts and the nature of expenditures.
3. A sample copy of a uniform governing instrument (such as a charter or articles of association) adopted by the subordinates, or, in its absence, copies of representative instruments.
4. An affirmation to the effect that, to the best of the officer's knowledge, the purposes and activities of the subordinates are as stated in (2) and (3), above.
5. A statement that each subordinate to be included in the group exemption letter has given written authorization to that effect, signed by an authorized officer of the subordinate, to the central organization (see also New 501(c)(3) organizations that want to be included, later in this section).
6. A list of subordinates to be included in the group exemption letter to which the IRS has issued an outstanding ruling or determination letter relating to exemption.
7. If the application for a group exemption letter involves section 501(c)(3) and is subject to the provisions of the Code requiring that it give timely notice that it is not a private foundation (see Private Foundations in chapter 3), an affirmation to the effect that, to the best of the officer's knowledge and belief, no subordinate to be included in the group exemption letter is a private foundation as defined in section 509(a).
8. For each subordinate that is a school claiming exemption under section 501(c)(3), the information required by Revenue Ruling 71-447 and Revenue Procedure 75-50 (these requirements are fully described in chapter 3, under Private Schools; see also Schedule B, Form 1023).
9. For any school affiliated with a church, the information to show that the provisions of Revenue Ruling 75-231 have been met.
10. A list of the names, mailing addresses, actual addresses if different, and EINs of subordinates to be included in the group exemption letter. A current directory of subordinates may be furnished instead of the list if it includes the required information and if the subordinates not to be included in the group exemption letter are identified.

New 501(c)(3) organizations that want to be included.   A new organization, described in section 501(c)(3), that wants to be included in a group exemption letter, must submit its authorization (as explained in item number 5 above, under Information required for subordinate organizations) to the central organization before the end of the 15th month after it was formed in order to satisfy the requirement of section 508(a). The central organization must also include this subordinate in its next annual submission of information as discussed below under Information Required Annually.

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