IRS To EOs: We Can’t Help

by Proskauer - Not for Profit/Exempt Organizations
Contact

Every January, the IRS releases a series of revenue procedures detailing how organizations can obtain private letter rulings and determinations and listing issues on which the IRS will not rule during the coming year.  This year’s procedures make clear that tax-exempt organizations will no longer be able to receive a ruling or any comfort from the IRS that changes in their operations are consistent with their tax-exempt status.  In other words, exempt organizations are on their own.

Until recently, an organization could request a private letter ruling from the Exempt Organizations technical branch that a particular activity or transaction would not generate unrelated business taxable income or adversely affect exempt status.  The IRS would not rule on factual issues, such as whether a proposed transaction was at a fair market value price, and would not rule on a few specific issues, such as whether participation in a joint venture with a for-profit entity would affect exempt status.

As we reported previously, IRS functions concerning exempt organizations were reallocated at the beginning of 2015.  Private letter ruling functions were transferred from the EO Technical group to the Associate Chief Counsel (Tax Exempt and Government Entities) and were governed by Rev. Proc. 2015-1.  Rev. Proc. 2015-1 indicated that issues under the jurisdiction of the Associate Chief Counsel (TEGE) included exemption requirements for, and tax treatment of, tax-exempt organizations.  Further, the 2015 annual revenue procedure for changes in Section 501(c)(3) organizations’ public charity and private foundation status, Rev. Proc. 2015-10, stated that an exempt organization maintaining the same public charity status could request a letter ruling under Rev. Proc. 2015-1 that a change in its facts and circumstances would not adversely affect its exempt status and public charity status.  Nonetheless, during 2015 the Associate Chief Counsel (TEGE) encountered difficulty in ruling that changes in circumstances would not affect tax-exempt status because this conclusion was like a determination of exempt status, an area governed by EO Determinations.

The 2016 annual procedures have addressed this difficulty by providing that the Associate Chief Counsel (TEGE) will not issue private letter rulings as to an exempt organization’s continued exempt status.  The annual “no-rule” list, Rev. Proc. 2016-3, added a section 3.01(69) stating that letter rulings would not be issued on whether an organization is or continues to be exempt from taxation under §501(a) as an organization described in §§501(c) or 501(d), including, for example, whether changes in an organization’s activities or operations will affect or jeopardize the organization’s exempt status. The Associate Chief Counsel (TEGE) will rule, however, on specific legal questions related to §§501(c) or 501(d) that are not otherwise described in this revenue procedure. For example, although the Associate Chief Counsel (TEGE) would not rule on whether a change in a §501(c)(3) organization’s activities would jeopardize the organization’s exempt status, the Associate Chief Counsel (TEGE) would (subject to the limitations described in this revenue procedure) rule on whether such new activities would further an exempt purpose described in §501(c)(3).

Correspondingly, Rev. Proc. 2016-4, which addresses guidance provided by the Commissioner of the Tax Exempt and Government Entities Division, provides that all letter rulings pertaining to exempt organization issues are issued by the Office of Associate Chief Counsel (TEGE).

Thus, an exempt organization will no longer be able to obtain a private letter ruling that its tax-exempt status is unaffected by an activity or transaction.  Rev. Proc. 2016-3 does state that the Associate Chief Counsel (TEGE) may rule on the specific legal question of whether activities further an exempt purpose.  The extent to which this power will be exercised, or will be helpful to exempt organizations, remains to be seen.

In addition, in past years, a tax-exempt organization could write to the IRS to notify it of changes in activities.  In some cases, the IRS would respond that the changes did not affect the organization’s exempt status.  This option has also been foreclosed.  Form 990 instructions now provide that the IRS is to be notified of changes in activities through their inclusion on the Form 990.

In short, exempt organizations that have already gone through the determination process are on their own, without IRS help, when activities change, making consultation with legal and tax advisors more critical than ever.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Proskauer - Not for Profit/Exempt Organizations | Attorney Advertising

Written by:

Proskauer - Not for Profit/Exempt Organizations
Contact
more
less

Proskauer - Not for Profit/Exempt Organizations on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.