|January 7, 2014|
Previously published on January 3, 2014
On January 2, 2014, the Internal Revenue Service released Revenue Procedure 2014-4, updating the agency's procedures for processing ruling requests and determinations relevant to tax-exempt organizations. One significant update could affect many exempt organizations that have ruling requests pending before the IRS: the Service will no longer grant requests for expedited consideration of determination letters. Unfortunately, this policy change removes a legitimate "triage" function from this area of tax administration. Historically, the expedite procedures have provided a safety valve to facilitate charitable giving in times when community needs merited urgent IRS action.
Commenting on this development, Marcus S. Owens observed that
"This is a high-risk move for the IRS. Procedures for expedited consideration are important for those inevitable matters in which quick IRS action is compelled by the moral/ethical aspects of the situation. This policy change appears to remove an important safety valve in one of the most sensitive areas of tax administration."
The term "determination letter" includes all rulings issued by the IRS EO Determinations office in Cincinnati—namely, rulings on exemption applications (i.e., Forms 1023 and 1024), as well as a variety of requests submitted with Form 8940 (e.g., a private foundation's request for termination under IRC section 507 or approval of its scholarship grantmaking procedures, a request to change a section 501(c)(3) organization's classification as a private foundation or public charity, or a request for confirmation of supporting organization sub-classification). See Rev. Proc. 2014-4, sections 3.04 and 7.04. Several of these requests were, until recent years, handled by the National Office in private letter ruling requests.
Expedited handling allows the IRS to accelerate the processing of ruling requests by moving a request to the front of the queue "when a factor outside a taxpayer's control creates a real business need to obtain a letter ruling before a certain time in order to avoid serious business consequences." Id. at 146. Historically, new charities applying for exempt status have relied upon the expedited procedures when, for example, a crisis or disaster relief situation necessitated urgent infusion of charitable dollars, or when critical start-up funding hinged on a donor's deadline. While expedited processing remains available for PLRs submitted to the EO Technical department in the IRS's National Office, the Service has eliminated the option for rulings requested from EO Determinations in Cincinnati.