The Internal Revenue Service is changing some of the forms and procedures that organizations can use to apply for tax-exempt status as it seeks to emerge from a high-profile scandal last year over how it handled applications from political groups.
The IRS’s Exempt Organizations office said in an email Friday to charities and nonprofits that it has updated the alternate version of Form 1023, Application for Recognition of Exemption. The application, which incorporates changes suggested by the public, became available at the end of December and includes information about the current user fee.
The Interactive Form 1023 (i1023) features pop-up information boxes for most lines of the form. These boxes contain explanations and links to related information on IRS.gov and StayExempt.irs.gov, The EO office’s educational Web site. Once the application has been completed, applicants will be able to print and mail the form and its attachments, just like the standard Form 1023.
Some of the benefits of the new interactive form, according to the IRS, will be that applicants will be able to submit a more complete form, while IRS processing time will be reduced. In addition, applicants will receive a tax-exempt determination more quickly from the IRS. Last year, a number of Tea Party-affiliated groups and other conservative organizations complained that the IRS was taking a long time to approve their applications for tax-exempt status under Section 501(c)4 of the Tax Code—which governs social welfare organizations—and subjecting them to extra scrutiny.
The IRS admitted that it had improperly used so-called “Be on the Lookout,” or BOLO, lists to group together applications from conservative organizations with terms like “Tea Party,” “Patriot” and “9/12” in their names. Amid a congressional investigation, the IRS released documents indicating that it had also given extra scrutiny to applications from liberal groups with terms like “Progressive” and “Occupy” in their names. The former head of the EO unit at the IRS, Lois Lerner, stepped down in the wake of the scandal, along with several other high-ranking IRS officials.
Last November, the IRS released initial guidance for how it would evaluate future applications for 501(c)4 status by groups seeking tax-exempt status as “social welfare organizations” (see Treasury and IRS Issue Guidance for 501(c)4 Tax-Exempt Social Welfare Organizations). However, the proposals quickly attracted further controversy from groups claiming that the IRS was trying to prevent them from engaging in political activity, and the new rules have not been finalized.
In the meantime, the IRS has been making changes in how groups can apply for tax-exempt status, introducing a way last June for groups to self-certify themselves ahead of time if they agree to operate within certain limits for political and social activity (see IRS Outlines Steps to Fix Problems with Tax-Exempt Applications).
The new i1023 form that was introduced in December is based on recommendations by the IRS’s external Advisory Committee on Tax-Exempt and Government Entities, the IRS said in its email Friday. The IRS is asking for feedback on the new form. Interested parties can send their comments about the form to firstname.lastname@example.org.
New Revenue Procedures
The IRS is also now changing some of its processes for approving tax-exempt applications under other sections of the Tax Code besides 501(c)4. A new revenue procedure, Rev. Proc 2014-9, describes the procedures for issuing determination letters and rulings on the exempt status of organizations under Sections 501 and 521 of the Code. The procedures also apply to the revocation and modification of determination letters or rulings, and provide guidance on the exhaustion of administrative remedies for purposes of declaratory judgment under Section 7428 of the Code. The new revenue procedure supersedes one from last year, Rev. Proc. 2013-9.
Another new revenue procedure, Rev. Proc. 2014-10, describes the procedures for issuing determination letters and rulings on private foundation status under Section 509(a) of the Tax Code, operating foundation status under Section 4942(j)(3), and exempt operating foundation status under Section 4940(d)(2) of the Code, for organizations that are exempt from federal income tax under Section 501(c)(3). This revenue procedure supersedes Rev. Proc. 2013-10.
Also of interest to tax-exempt organizations, the IRS has issued Rev. Proc. 2014-4, which is a general update of the rules from last year in Rev. Proc. 2013-4, containing the IRS’s general procedures for Employee Plans and Exempt Organizations letter ruling requests.
In addition, Rev. Proc. 20145 is a general update of Rev. Proc. 2013-5, which contains the general procedures for technical advice requests for matters within the jurisdiction of the commissioner of the IRS’s Tax Exempt and Government Entities Division.