Annual IRS Revenue Procedures Include No-Determination for 501(c)(5)s Relating to Controlled Substances

With the start of a new year comes the updated versions of the IRS annual Revenue Procedures relating to letter rulings and information letters, technical advice memorandum, no ruling areas, and determination letters. See Internal Revenue Bulletin 2022-1 (Jan. 3, 2022). While most changes are minor or reflect previously announced changes, Paul Streckfus at the EO Tax Journal spotted an interesting change to Revenue Procedure 2022-5, relating to Exempt Organizations determination letters:

Section 3.02 was amended to include that the Service will not issue a determination letter when the request concerns an organization seeking to qualify under § 501(c)(5) whose purpose is directed to the betterment of conditions of those engaged in the pursuits of labor, agriculture, or horticulture, the improvement of the grade of their products, and the development of a higher degree of efficiency in their respective occupations relating to an activity involving controlled substances (within the meaning of schedule I and II of the Controlled Substances Act, 21 USC § 801 et seq.) which is prohibited by Federal law regardless of its legality under the law of the state in which such activity is conducted.

Without having done any research, my guess is that this change was made to foreclose consideration of exemption applications from marijuana-related organizations seeking section 501(c)(5) status. (For discussion of the tax issues faced by marijuana dealers operating legally under state, but not federal, law, see, for example, Ben Leff, Tax Planning for Marijuana Dealers, 99 Iowa L. Rev. 523 (2014).) And it is unclear to me how this change can prevent such an organization from pursuing a declaratory judgment in court under section 7428 if the IRS refuses to rule on such an application.

Lloyd Mayer