IRS Changes to Advisory Committee, EO Audits, Form 990-N Filing, and Supporting Org Regs (latter only proposed)

Since the beginning of the year the IRS has proposed several minor but still significant changes to its practices relating to tax-exempt organizations:

• In January the IRS announced that because of structural changes within the TE/GE Division the Advisory Committee on Tax Exempt and Government Entities (ACT) will now focus on tax administration issues encountered across that Division and have, as of June 2016, a smaller membership of 15 as opposed to the current 21. ACT’s new charter, effective as of last May, also changed the terms of members to a flat three years as opposed to the previous two years plus the option of a one-year extension.

• Bloomberg BNA Daily Tax Report reported (subscription required) yesterday that the IRS has issued an internal memorandum (TEGE-04-0216-0003) stating that the IRS will no longer modify an organization’s  exemption category when the organization is found to no longer qualify for exemption under its original exemption category. So, for example, if an organization originally recognized as exempt under section 501(c)(4) is found to no longer qualify for that status but could qualify for recognition of exemption under section 501(c)(7), the IRS will no longer modify its status to exemption under section 501(c)(7) but will instead simply revoke (or treat as revoked for declaratory judgment purposes) its status under section 501(c)(4). Such an organization may, however, apply or reapply for recognition of exemption under a new exemption category. The memorandum states this change is necessary because Congress has now made a declaratory judgment process available for all revoked exempt organizations, not just revoked 501(c)(3)s, and so all revocations must be treated the same. While not completely clear, this change appears to driven by a need to ensure all organizations that lose their recognition of exemption under a particular category have the option to seek declaratory judgment because modifying an organization’s status to place it under a different category would, or at least could, prevent it from exercising its declaratory judgment rights.

• Effective as of the end of last month, the e-filing system for Form 990-N has moved to the IRS website. Filers will need to complete a one-time registration form when they first file on the IRS website. Previously the Urban Institute hosted the e-filing webpage for this form, but that webpage now sends readers to the new IRS webpage.

• Last month the IRS issued a set of proposed regulations for Type I and Type III Supporting Organizations. The preamble to the proposed regulations states “[t]hese proposed regulations focus primarily on the relationship test for Type III supporting organizations.” Comments on the proposed regulations are due by May 19, 2016.

Lloyd Mayer