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Processing Your Exemption Application
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Processing Your Exemption Application

Your exemption application may provide enough information for the IRS to issue a ruling on your exempt status under section 501(c)(3). Frequently, however, the IRS reviewer will need additional information to complete your application. The reviewer will write a letter requesting the additional information by a specified date.

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.

Rulings in Advance of Operations: 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 mentioned above, 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.

Public Disclosure: An exemption determination letter is subject to public disclosure.

While You Wait
If an annual exempt organization return is due while the organization’s application for recognition of exempt status is pending with the IRS (including any appeal of a proposed adverse determination), the organization must file it, indicating that its exemption application is pending. Like other exempt organization returns, these are subject to public disclosure.

If an organization has unrelated business income of more than $1,000, also file Form 990-T, Exempt Organization Business Income Tax Return.

Your organization should comply with tax law requirements applicable to section 501(c)(3) tax-exempt organizations. See Publication 4221-PC, Compliance Guide for 501(c)(3) Public Charities, for more information.

Incomplete Application
If an exemption application does not contain the required information, the IRS may return it with a letter of explanation, and will not consider the application on its merits. If you resubmit a completed application within the time period indicated in the letter from the IRS, it will be considered received on the original submission date. In that case, if the original submission was timely, the application will be considered timely filed.

Different Application Form Needed
If a different application form is required for your organization, the IRS will so advise your organization and will provide the appropriate application form for your convenience in reapplying under that paragraph, if you wish to do so. Although supporting information previously furnished need not be duplicated, you must provide any necessary additional information required for the application. If your reply is not received within a limited time, your application will be processed only for the paragraph under which you originally applied.

When a specific application form is needed for the paragraph under which your organization qualifies, that form is required before a letter recognizing exemption can be issued. This includes cases in which an exemption letter is modified to recognize an organization’s exempt status under a paragraph other than the paragraph under which it originally established exemption.

IRS Responses
Organizations that submit a complete application will receive an acknowledgment from the IRS. Others will receive a letter requesting more information or returning an incomplete application. Applicants also will be notified if the application is forwarded to the Headquarters of the IRS for consideration. These letters will be sent out as soon as possible after receipt of the organization’s application.

DISCLAIMER: This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here.