Publication 557 |
2001 Tax Year |
Rulings & 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:
- A notice to the organization to which the ruling or
determination letter originally was issued,
- Enactment of legislation or ratification of a tax
treaty,
- A decision of the United States Supreme Court,
- Issuance of temporary or final regulations, or
- 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.
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