Rev. Rul. 54-164

SECTION 1. PURPOSE.

The purpose of this Revenue Ruling is to clarify certain procedures and prescribe new procedures for compliance by organizations claiming exemption under section 101 of the Internal Revenue Code.

SEC. 2. FILING OF APPLICATION FOR EXEMPTION.

.01. General requirements.--Any organization claiming exemption under section 101 of the Internal Revenue Code, unless already in receipt of a determination letter or ruling letter from the Internal Revenue Service establishing exemption, is required by Treasury Department regulations to file an application for exemption with the District Director of Internal Revenue for its district. (Sec. 39.101-1 of Regs. 118, as amended by T. D. 6060 [p. 86, this Bulletin], approved Jan. 12, 1954.) If any such application is filed with the National Office or with a field office other than as prescribed by the regulations, it will, without any action thereon, be forwarded immediately to the appropriate District Director's office.

.02 Organizations with less than 12 months' operation.

1. In view of the statutory requirements for exemption and the administrative responsibilities of the Service in the field of exempt organizations, a determination or ruling on an application for exemption will generally not be made with respect to a newly formed organization until it has actually operated for such a period and to such an extent as to clearly demonstrate a bona fide operation for the purposes specified in the exemption statute. Exceptions to this general rule are stated in section 5.

2. Except as otherwise provided in section 5, an application for exemption should not be filed by an organization until it has had at least 12 months of active operation (not mere existence) for the purposes for which it was created, that is, actual operation for such a period and to such an extent as will clearly demonstrate that in fact the organization is conducted for purposes within the exemption provisions of the statute. Attention is invited to the applicable provisions of the regulations and the information called for on the application forms to be filed by organizations claiming exemption.

SEC. 3. CLASSIFICATION OF APPLICATIONS FOR EXEMPTION.

Applications are classified in the following categories in the District Director's office:

.01 District Director's cases.--Cases of a routine nature in which the application of section 101 of the Internal Revenue Code to the facts shown on the exemption application is clear under the regulations and rulings of the National Office and which do not present involved or questionable issues will be classified as "District Director's cases." For further details, see sections 4 and 5.

.02 Incomplete application cases.--Exemption applications in the case of newly formed organizations as to which determinations or rulings will not be made (as provided in section 2.02 subject to the exceptions under section 5) and in other cases where the required information is not given on the exemption application will be classified as "incomplete application cases." In such cases the application will be returned to the organization with an appropriate letter of explanation.

.03 National Office cases.--Cases which present involved or questionable issues and do not fall within the category of District Director's cases or incomplete application cases will be classified as "National Office cases." Exemption applications so classified will be referred to the National Office for ruling, which will be made to the organization.

SEC. 4. ACTION ON APPLICATIONS FOR EXEMPTION.

.01 District Directors are authorized to issue determination letters in "District Director's cases" as defined in section 3, including tentative determinations of status in cases within the scope of section 5. Such letters will be issued over the District Director's signature, either concluding that the organization is exempt or that it is not exempt. Such determination letters will represent the determination (or tentative determination as authorized under section 5) of the District Director as to the status of an organization based on the application to the facts of the case of established precedents and principles set forth in the regulations and rulings of the National Office. The National Office will continue to issue rulings (or tentative rulings) on exempt organizations in cases referred to the National Office by District Directors as described in section 3.03 and section 5.02.

.02 Types of organizations whose exemption applications normally present clear-cut situations on which the District Director is authorized to issue determination letters include (but are not restricted to) the following:

101(1). Labor unions (other than group).

101(4). Credit unions (State chartered).

101(6). Churches of well-known denominations. (Applications generally not required.)

Community chests, including each participating agency.

Local organizations of Salvation Army and similar organizations.

4-H clubs.

Public libraries.

Educational organizations having a student body, instructors, etc.

101(7). Chambers of commerce, boards of trade, real-estate boards, etc.

101(8). Local veterans' organizations (other than group).

101(10). Mutual ditch or irrigation companies.

Mutual telephone companies.

SEC. 5. EXCEPTIONS TO THE GENERAL RULE REQUIRING ACTIVE OPERATION FOR A PERIOD OF NOT LESS THAN 12 MONTHS AS A CONDITION PRECEDENT TO THE ISSUANCE OF A DETERMINATION OR RULING.

.01 Tentative determination letters will be issued by District Directors to newly formed organizations with less than 12 months of active operation in a case in which an affirmative showing is made (in or in connection with the exemption application) that the organization is of the community or public type. Tentative rulings will be issued by the National Office upon the same standards in National Office cases. Factors which characterize a community or public organization include responsible public representation on its board of directors or trustees, financial support provided by public contributions, or required reporting to a governmental or public body assuring the organization's adherence to the purposes for which it was formed, such as periodical reporting to a State agency or political subdivision. Examples of organizations of the community or public type are set forth below:

1. Nonprofit organizations formed by well-known religious denominations in furtherance of their religious, charitable, and educational purposes and activities;

2. Charitable organizations such as hospitals, orphanages and the like, publicly supported and managed, which clearly serve a present public need;

3. Veterans' or charitable organizations having for their purpose the promotion of the welfare of persons in the Armed Forces or who have been in the Armed Forces, provided that such organizations establish that they intend presently to begin active operation for the purposes specified in section 101(6) or section 101(8);

4. Educational organizations such as schools and colleges which normally have a regular faculty, curriculum, and student body, as described in section 54(f)(2) of the Code; and

5. Other organizations which are clearly public in character or which represent a community-wide project or undertaking.

.02 Any case in which the facts in the exemption application, although persuasive of the conclusion that the organization is of the community or public type, present involved or questionable issues on which the District Director is in doubt will be classified as a "National Office case" and processed as provided in section 3. Where the facts clearly establish that the organization is of the community or public type, the District Director is authorized to issue a tentative determination letter with the requirement that the organization at the termination of its first full year of operation shall submit a new application, together with complete supporting data as specified in the application form or in the applicable regulations.

.03 The provisions of this section shall not be deemed to limit the existing authority of the District Director, in cases where the liability of an organization for certain other Federal taxes is dependent on a determination under, or similar to that under, section 101 (such as in the case of certain exemptions under the admissions tax), to make a tentative determination of the status of the organization for purposes of such other taxes, pending and subject to a determination or ruling on the organization's application for exemption under section 101. However, for income tax purposes, unless the exemption application filed under such circumstances by an organization with less than 12 months of active operation makes an affirmative showing that the organization is of the community or public type, it will be returned as incomplete and a determination or ruling as to the status of the organization under section 101 will not be made until the organization has had at least 12 months of active operation.

.04 Determination letters allowing exemption under section 101(4) of the Code will be issued to State chartered credit unions at any time after their formation if they operate under uniform bylaws approved by the State.

SEC. 6. REVIEW AND CONFERENCES.

.01 The National Office shall conduct such review of determination letters issued by District Directors' offices (including tentative determination letters) as is considered necessary to assure conformity with the interpretations and policies of the Revenue Service. It is the general policy of the Internal Revenue Service to limit the revocation of a ruling with respect to an organization previously held to qualify under section 101 to a prospective application only, if the organization has acted in good faith in reliance upon the ruling issued to it and a retroactive revocation of such ruling would be to its detriment. Any ruling issued as to the exempt status of an organization will not be considered controlling where there has been a misstatement or omission of a material fact or where the operations of the organization are conducted in a manner materially different from that represented. A revocation may be effected by a notice to the organization or by a ruling or other statement published in the Internal Revenue Bulletin applicable to the type of organization involved. The same policy will be applicable to determination letters issued by District Directors.

.02 With respect to any case coming under the provisions of this Revenue Ruling which is referred to the National Office for issuance of a ruling, or where the National Office proposes to take a different view as to the qualification of the organization for exemption under section 101 than that reflected in a determination letter issued by the District Director, conferences in the National Office will be granted in accordance with the procedure for conferences on requests for rulings or technical advice. See Rev. Rul. 10, C. B. 1953-1, 488, and Mimeograph 6293, C. B. 1948-2, 59.

SEC. 7. EFFECTIVE DATE.

The provisions of this Revenue Ruling shall become effective May 24, 1954.

¹ Originally issued as IR-Mimeograph No. 54-73, dated April 28, 1954.