Tuesday, February 2, 2021
The Office of the Chief Counsel of the IRS recently issued a memorandum describing when nonprofits seeking charitable tax exempt status under section 501(c)(3) might receive relief from failing to file their application in a timely manner. For counsel meeting this problem, this memo is likely a very useful tool for considering options.
It's a long memo, but the basics are:
1. Under what circumstances, if any, should Exempt Organizations, Determinations (EOD) provide Treas. Reg. § 301.9100-3 relief to IRC section 501(c)(3) applicants?
2. What is the proper process for denying relief requests under § 301.9100-3? (i.e., does taxpayer have section 7428 Declaratory judgment rights?)
- Section 501(c)(3) organizations who are eligible to self-declare, like non-(c)(3) self-declarers, are not eligible for § 301.9100-3 relief because they did not fail to make a required regulatory election. Further, organizations that fail to file the necessary information returns holding themselves out as exempt organizations are not eligible for § 301.9100-3 relief because they would not otherwise be exempt for the period for which they are requesting relief. In addition, the Internal Revenue Service (“Service”) is justified under the applicable standard of review to deny such relief on the grounds that the organizations did not act in reasonable good faith. Finally, organizations that have filed the necessary information returns are not eligible for relief beyond the date of which the statute of limitations on assessment of tax has expired, which is typically three years after the due date of the return.
- Denial of § 301.9100-3 relief by EOD does not separately provide a right to petition the Tax Court under section 7428 because § 301.9100-3 relief is purely a function of administrative grace, is not a justiciable controversy described in section 7428, and is reviewed under a completely separate standard than the de novo standard used in section 7428 actions. However, section 7428 jurisdiction over the denial of exempt status for periods prior to the postmark date of the
application appears to be a matter of first impression."