On March 31, 2015, the Commissioner of the IRS reported in a speech to the National Press Club that the IRS is “under new management” due to major changes in management staff over the last few years. Many of these management changes, as well as changes in organization and procedures, were in the Tax-Exempt and Governmental Entities (TEGE) branch of the IRS.
Organizational Changes. Previously, an Exempt Organizations Rulings and Agreements branch was responsible for issuing exemption determination letters. This function was headquartered in Cincinnati but several types of applications were required to be referred to an EO Technical branch in Washington (formerly referred to as the National Office). EO Technical also issued private letter rulings and gave technical advice. This was unlike other branches of the IRS. Elsewhere branches of the IRS Chief Counsel’s office, rather than technical staff reporting to the associate commissioners, were responsible for the private letter ruling and technical advice function. In Announcement 2014-34, the IRS explained that its Tax Exempt and Government Entities Division (TE/GE) was being realigned. Technical responsibility for preparing technical advice and private letter rulings, as well as revenue rulings, revenue procedures, announcements, and notices, was shifted to TEGE Counsel effective January 2, 2015. The EO Rulings and Agreements branch will retain its authority to issue determination letters approving or denying tax-exempt status as well as miscellaneous determinations addressed in Form 8940.
Effect on Procedures. When EO Technical issued private letter rulings, the user fee structure was different from the user fees required of for-profit businesses requesting rulings from other branches. That is no longer the case; the same user fees apply to all types of entities, exempt or not. Within the space of a month, user fees for exempt organizations requesting rulings climbed from $10,000 to $28,300 (except for extremely small organizations).
Previously, exemption applications from several types of organizations, such as health maintenance organizations, faculty practice plans, and section 501(c)(25) title holding companies, were required to be referred to EO Technical for centralized processing. The group of applications to be referred was sharply limited in April 2014 and referrals should no longer be made. Because determination letters will no longer be issued by EO Technical, there will be no such letters to be made public under Notice 92-28, which has been the IRS’s policy.
Form 1023-EZ. The IRS created a Form 1023-EZ for small organizations to apply for 501(c)(3) status more easily and alleviate the backlog of Forms 1023 pending at the IRS. The Form 1023-EZ was formalized under Revenue Procedure 2014-40, effective July 1, 2014. The form is available for use by organizations that anticipate gross receipts of no more than $50,000 annually and assets of no more than $250,000. It is not available for use by many types of organizations that require specialized evaluation, such as foreign organizations, schools, hospitals, supporting organizations, credit counseling organizations, organizations intending to participate in joint ventures with for-profit entities, successors to for-profit entities, or donor-advised funds. If an organization is eligible, it completes the short form online and does not submit paper documents. The IRS recently reported that about half of the Section 501(c)(3) applications it now receives are on Form 1023-EZ and that it takes less than 30 days on average to process the Form 1023-EZ. The IRS will soon implement a post-determination compliance program of correspondence audits for organizations that received determinations using the Form 1023-EZ to evaluate compliance after these organizations have been in operation a year or more. The determination letter that is issued to a successful Form 1023-EZ applicant is the same as that issued to a Form 1023 applicant and does not indicate that a shorter form was filed or that less review was undertaken by the IRS.