Rev. Proc. 77-21

Section 1. Purpose.

This Revenue Procedure sets forth procedures of the Internal Revenue Service with respect to the issuance of determinations and related matters to which section 7428 of the Internal Revenue Code of 1954 applies. This section, "Declaratory Judgments Relating to Status and Classification of Organizations Under Section 501(c)(3), Etc." was added by the Tax Reform Act of 1976, P.L. 94-455, 1976-3 C.B. 193 (Vol. 1).

Sec. 2. Background.

.01 The declaratory judgment provisions of section 7428 of the Code apply to an actual controversy involving a determination by the Service, or a failure by the Service to make a determination, with respect to the initial or continuing qualification or classification of organizations under sections 501(c)(3) (charitable, educational, etc.); 170(c)(2) (deductibility of contributions); 509(a) (private foundation status); and 4942(j)(3) (operating foundation status).

.02 The general instructions for processing applications for recognition of exemption under section 501(c) of the Code and for revoking or modifying such exemption rulings and determination letters are contained in Rev. Proc. 72-4, 1972-1 C.B. 706.

.03 The procedures for appealing adverse determination letters issued with respect to applications for recognition of exemption from Federal income tax under section 501(c) of the Code and with respect to revocation or modification of exemption rulings and determination letters are contained in Rev. Proc. 76-33, 1976-2 C.B. 655.

.04 The procedures for appealing adverse ruling letters issued with respect to exemption applications under section 501(c) of the Code that are referred to the National Office by a District Director are set forth in Rev. Proc. 72-4, 1972-1 C.B. 706, and Rev. Proc. 72-3, 1972-1 C.B. 698.

.05 The procedures for issuing rulings and determination letters on private foundation status under section 509(a) of the Code and operating foundation status under section 4942(j)(3) and for revocations, modifications, and reconsiderations of such rulings and determination letters are contained in Rev. Proc. 76-34, 1976-2 C.B. 656.

Sec. 3. Filing and Processing Applications for Recognition of Exemption Under Section 501(c)(3) of the Code.

.01 An organization seeking recognition of exempt status under section 501(c)(3) of the Code must follow the procedures of Rev. Proc. 72-4 and Section 3 of Rev. Proc. 76-33 regarding the filing of Form 1023, Application for Recognition of Exemption.

.02 The 270-day period referred to in section 7428(b)(2) of the Code will be considered by the Service to begin on the date a substantially completed Form 1023 is sent to the appropriate key District Director.

A substantially completed Form 1023 is one that:

1 is signed by an authorized individual;

2 includes an Employer Identification Number (EIN) or a completed Form SS-4, Application for Employer Identification Number;

3 includes a statement of receipts and expenditures and a balance sheet for the current year and the three preceding years (or the years the organization was in existence, if less than four years). If the organization has not yet commenced operations, a proposed budget for two full accounting periods and a current statement of assets and liabilities will be acceptable;

4 includes a statement of proposed activities and a description of anticipated receipts and contemplated expenditures;

5 includes a copy of the organizing or enabling document that is signed by a principal officer or is accompanied by a written declaration signed by an officer authorized to sign for the organization certifying that the document is a complete and accurate copy of the original; and

6 if the organization is a corporation or unincorporated association and it has adopted by-laws, includes a copy that is signed or otherwise verified as current by an authorized officer.

.03 If an application does not contain all of the above items, it will not be further processed and may be returned to the applicant for completion. The 270-day period will not be considered as starting until the date the application is remailed to the Service with the requested information, or, if a postmark is not evident, on the date the Service receives a substantially completed application.

Sec. 4. Issuing Rulings and Determination Letters.

.01 Generally, rulings and determination letters in cases subject to declaratory judgment are issued under the procedures outlined in Rev. Procs. 72-4, 76-33, and 76-34.

.02 In National Office exemption application cases, proposed adverse rulings will be issued by the Rulings Sections in the Exempt Organizations Technical Branch. Applicants shall appeal these proposed adverse rulings to the Conference and Review Staff of the Exempt Organizations Technical Branch.

.03 In those cases where an organization is unable to describe fully its purposes and activities (see section 5 of Rev. Proc. 72-4), a refusal to rule will be considered an adverse determination for which administrative appeal rights will be afforded.

.04 Any oral representation of additional facts or modification of the facts as represented or alleged in the application for a ruling or determination letter must be reduced to writing.

Sec. 5. Withdrawal of Applications.

If an organization withdraws in writing its request for a ruling or determination letter, the withdrawal will not be considered by the Service as either a failure to make a determination within the meaning of section 7428(a)(2) of the Code or as an exhaustion of administrative remedies within the meaning of section 7428(b)(2).

Sec. 6. Exhaustion of Administrative Remedies.

.01 Section 7428 of the Code requires that an organization must exhaust its administrative remedies by taking timely, reasonable steps to secure a determination. Those steps and administrative remedies required to be exhausted within the Internal Revenue Service are:

1 the filing of a substantially completed application Form 1023 pursuant to section 3 of this Revenue Procedure or the filing of a request for a determination of foundation status pursuant to Rev. Proc. 76-34;

2 the timely submission of all additional information requested to perfect an exemption application or request for determination of private foundation status; and

3 exhaustion of all administrative appeals available within the Service pursuant to Rev. Procs. 76-33 and 76-34, as well as appeal of a proposed adverse ruling to the Conference and Review Staff of the Exempt Organizations Technical Branch in National Office original jurisdiction exemption application cases.

.02 An organization will in no event be deemed to have exhausted its administrative remedies prior to the earlier of:

1 the completion of the steps in .01 of this section; and

2 the sending by certified or registered mail of a notice of final determination from a key District Director, the office of the Assistant Regional Commissioner (Employee Plans and Exempt Organizations) or the Chief, Exempt Organizations Technical Branch in the National Office; or

3 the expiration of the 270-day period described in section 7428(b)(2) of the Code, in a case where the Service has not issued a notice of final determination and the organization has taken, in a timely manner, all reasonable steps to secure a ruling or determination.

.03 The steps described in subsection .01, above, will not be considered completed until the Internal Revenue Service has had a reasonable time to act upon the appeal or request for consideration, as the case may be.

Sec. 7. Notice of Final Determination.

A notice of final determination to which section 7428 of the Code applies is a ruling or determination letter, sent by certified or registered mail, which holds that the organization is not described in section 501(c)(3) or section 170(c)(2), is a private foundation as defined in section 509(a), or is not a private operating foundation as defined in section 4942(j)(3).

Sec. 8. Effect on Other Documents.

This Revenue Procedure supplements Rev. Procs. 72-4, 76-33, and 76-34.

Sec. 9. Effective Date.

This Revenue Procedure is effective June 13, 1977, the date of its publication in the Internal Revenue Bulletin.