Rev. Proc. 62-30

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to describe the procedures of the Internal Revenue Service with respect to requests of organizations for exemption from Federal income tax under sections 501 and 521 of the Internal Revenue Code of 1954. This Revenue Procedure is intended to inform those organizations and their representatives of the procedures to follow in applying for exemption in order to promote the efficient handling of their applications.

SEC. 2. FILING APPLICATIONS FOR EXEMPTION.

.01 General Requirements.--An organization claiming exemption under section 501 or section 521 of the Code is required to file an application for exemption with the District Director of Internal Revenue for the district where it would otherwise be required to file a tax return, unless it has already obtained a ruling or determination letter holding it exempt from Federal income tax. Any application received in the National Office or in a district office other than as provided above will be forwarded, without any action thereon, to the appropriate district office.

.02 Requests other than in the form of an application for exemption, involving the provisions of section 502 of the Code relating to feeder corporations, section 503 relating to prohibited transactions, section 504 relating to accumulation of income, or sections 511 through 515 relating to unrelated business income, should be forwarded to the Commissioner of Internal Revenue, Washington 25, D.C. In this connection see section 5 of this Revenue Procedure and Revenue Procedure 62-28, page 496, this Bulletin.

.03 Organizations with less than 12 months' operation.--A determination letter or a ruling will generally not be issued on the application of an organization until it has actively operated for a period of 12 months to an extent which will clearly demonstrate whether it is operated, in fact, for a purpose specified in the exemption statute. Thus, an organization should not file an application for exemption until it has been in active operation (not mere existence) for at least 12 months and can demonstrate that it has operated for the purposes for which it was created. Exceptions to this general rule are provided in section 4.

SEC. 3. CLASSIFICATION OF APPLICATIONS.

.01 District Directors' cases.--District Directors are authorized by Revenue Procedure 62-28, to issue determination letters involving the exempt status of organizations under sections 501 and 521 of the Code. That Revenue Procedure describes a determination letter as a statement issued by a District Director which applies the principles and precedents established by the Service to the facts involved in a particular inquiry. Thus, determination letters with respect to applications for exemption from Federal income tax are issued only with regard to cases in which the application of section 501 or section 521 of the Code to the facts presented in the applications is clear and which do not present involved or questionable issues. These cases will be classified as "District Director's cases."

.02 National Office cases.--Cases which present involved or questionable issues will be classified as "National Office cases." Exemption applications so classified will be forwarded to the National Office by the District Director for a ruling. The application will be processed in the National Office under the general procedures of Revenue Procedure 62-28, supra, and a ruling will be made directly to the organization.

.03 Applications for exemption which involve determinations under section 502 of the Code relating to feeder corporations, section 503 relating to prohibited transactions, section 504 relating to accumulations of income, or sections 511 through 515 relating to unrelated business income, are classified as "National Office cases."

.04 Incomplete application cases.--Exemption applications of organizations of the type described in section 2.03 of this Revenue Procedure, and other exemption applications which do not contain the required information, will be classified as "Incomplete application cases." In these cases the organization will be notified by appropriate letter as to the reason that a determination may not be made, but the application and related material will be retained.

SEC. 4. DETERMINATION LETTERS PRIOR TO 12 MONTHS OF OPERATION.

.01 A tentative determination letter or ruling will be issued to an organization with less than 12 months of active operation provided it is affirmatively shown in, or in connection with, its exemption application that the organization is of the community or public type and is organized for purposes within the purview of the exemption statute. Also, the details submitted in connection with its proposed activities should indicate that it will engage in activities clearly within the contemplation of the statute.

.02 In order to constitute an organization of the "community or public type," its governing board must be comprised of a cross section of persons of the community who represent interests of the community and it must be shown that it will also derive substantial financial support from the public rather than from a limited number of organizations or individuals.

.03 Where the facts establish that the organization meets the requirements of this section, the District Director is authorized to issue a tentative determination letter. This letter will contain a requirement that the organization shall submit a new application, together with complete supporting data as specified in the application form and in the regulations, at the end of its first full year of active operation (not mere existence). Where the facts, although persuasive of the conclusion that the requirements have been met, present involved or questionable issues, the application will be classified as a "National Office case."

.04 The provisions of this Revenue Procedure do not limit the authority of a District Director to make tentative determinations with respect to exemption of an organization from other Federal taxes (such as exemption from the admissions tax). Thus, a District Director may make a tentative determination whether an organization is exempt from other Federal taxes even though a determination may not be made with respect to Federal income tax.

.05 Determination letters allowing exemption under section 501(c)(14) 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. 5. PROHIBITED TRANSACTIONS.

.01 Section 503 of the Code denies exemption to certain organizations which engage in transactions of the type described therein. The National Office may issue a ruling as to whether an organization has entered into, or proposes to enter into, a prohibited transaction; but, except as provided in section 5.02, a ruling will not be issued where the determination is primarily one of fact, e.g., market value of property, reasonableness of compensation, etc. Also, no rulings will be issued with respect to such transactions as sales and leasebacks, gifts and leasebacks, and other rental transactions of real or personal property directly or indirectly with the creator or a related or controlled interest.

.02 Where the adequacy of the security of a loan is involved, a ruling may be issued, but only if there is a clear indication of value which can be established by reference to recognized sources without requiring physical valuation or appraisal. The following are examples of transactions where the adequacy of security can be established by reference to recognized sources:

1 A surety bond issued by a recognized surety company doing a surety bond business under applicable state law;

2 An assignment of an insurance contract having a cash surrender value sufficient to cover the loan, interest, and possible costs of collection;

3 A first mortgage on real property in an amount not in excess of 50 percent of its assessed value for local tax purposes; or,

4 Collateral represented by securities listed on a recognized exchange of an aggregate value equal to twice the amount of the loan.

.03 District Directors do not issue determination letters where there is a question whether an organization has engaged in a transaction of the type prohibited by section 503 of the Code. However, District Directors are expected, in the course of examination of the returns of the organization, to ascertain whether it has entered into a prohibited transaction. In this connection, see section 9 relating to revocation of exemptions.

.04 If it is concluded that a prohibited transaction was entered into by the organization for the purpose of diverting corpus or income from its exempt purpose and if the transaction involved a substantial part of the corpus or income of the organization, its exemption under the provisions of section 501(c)(3) of the Code is revoked and such revocation is effective as of the beginning of the taxable year during which the prohibited transaction was commenced. An organization is ordinarily notified of such revocation of exemption by regular mail.

.05 In all other prohibited-transaction cases, the exemption is revoked effective as of the beginning of the first taxable year after the date of the revocation letter. In these cases the organization will be notified of the revocation of exemption by registered or certified mail, sent to its last known address.

.06 While the organization will usually be permitted to submit its brief and to be heard in conference before the revocation notice is issued, the Service may, at its discretion, issue the revocation letter by registered or certified mail prior to the receipt of the brief or prior to granting a conference. If it is later determined that the revocation was in error, it will be rescinded as of the date it was issued.

.07 An organization which is denied exemption under section 503 of the Code may file a new application for exemption for any taxable year following the taxable year in which the notice of denial was issued. But an organization may not be granted an exemption before the beginning of the first taxable year following the year in which its new application is filed. Thus, if a revocation notice was issued in 1961, the organization may not file a new application for exemption until 1962, and the new exemption may not be granted for a taxable year prior to 1963. If the organization does not file a new application until 1963, the new exemption may not be granted for a year prior to 1964.

SEC. 6. REVIEW OF DETERMINATION LETTERS.

.01 The National Office will review determination letters issued under the procedures set forth herein to the extent necessary to assure uniformity in the application of the principles and precedents of the Service. If it is believed that a determination letter does not conform to the interpretation and policies of the Service, the District Director will be advised of the exceptions noted. If the organization protests the exception taken, the matter will be returned to the National Office. The determination letter and the protest will be treated as a request for technical advice and the procedures in Revenue Procedure 62-29, page 507, this Bulletin, will be followed.

SEC. 7. REFERENCE OF MATTERS TO THE NATIONAL OFFICE.

.01 An organization may, within 30 days from the date of issuance of a determination letter, file a protest with the District Director. It may protest the denial of exemption or it may protest the determination as to subsection of the Code under which the exemption was granted. If, after considering the protest, the District Director maintains his adverse position and the organization does not agree, the case will be referred to the National Office.

.02 The matter will be handled as though the question of exemption had arisen in connection with the examination or consideration of the return of the organization and the District Director had requested technical advice. Thus, the procedures in Revenue Procedure 62-29 will be followed.

SEC. 8. EFFECT OF EXEMPTION RULINGS AND DETERMINATION LETTERS.

.01 Exemption is usually effective as of the date of formation of an organization if, during the period prior to the date of the ruling or determination letter, the purposes and activities of the organization were entirely consistent with the facts constituting the basis for the exemption. If the organization is required to curtail or alter its activities, or to make substantive amendments to its enabling instrument, the exemption will be effective only for the period subsequent to the time the organization meets the statutory requirements.

.02 A ruling or a determination letter holding an organization to be exempt is effective only as long as there has been no material change in the character, the purpose, or the method of operation of the organization. The exemption may be revoked by a ruling or a determination letter addressed to the organization, or by a Revenue Ruling or other statement published in the Internal Revenue Bulletin applicable to the type of organization involved. See section 9 relating to revocation of exemptions.

.03 A ruling or a determination letter issued to an organization holding it to qualify for exemption under section 501 or section 521 of the Code may be revoked retroactively if there has been an omission or a misstatement of a material fact, if the organization operated in a manner materially different from that originally represented, or if the organization engaged in a prohibited transaction of the type described in section 5 of this Revenue Procedure. A ruling or a determination letter may also be revoked for failure to file an annual information return.

SEC. 9. REVOKING AN EXEMPTION RULING OR DETERMINATION LETTER.

.01 If a district office concludes, in the course of examining an information return, or from any other source, that a ruling or a determination letter holding an organization to be exempt should be revoked or modified, the organization will be advised in writing of the proposed action and the reasons therefor. The district office will also advise the organization of its rights to protest the proposed action by submitting a statement of the facts, law, and arguments in support of its continued exemption, and of its rights to an informal conference in the district office.

.02 If the organization agrees with the proposed action, either before or after an informal conference, or if no protest is filed, the District Director will advise the organization in writing of the revocation or modification of the exemption status.

.03 If, after considering the information submitted by the organization, both in writing and in conference, the district office is still of the opinion that the exemption letter should be modified or revoked, and the organization is not in agreement with such determination, the findings of that office will be forwarded to the National Office for consideration prior to further action. Such reference to the National Office will be considered a request for technical advice and the procedures of Revenue Procedure 62-29, will be followed.

SEC. 10. EFFECT ON OTHER PUBLICATIONS.

.01 The procedures of Revenue Procedure 62-28, supra, relating to the issuance of rulings and determination letters, are applicable to requests for exemption from Federal income tax, except to the extent inconsistent with the specific procedures and instructions of this Revenue Procedure.

.02 Revenue Ruling 54-164, C.B. 1954-1, 88, is superseded. Sections 1(e) and 1(f) of Revenue Procedure 56-8, C.B. 1956-1, 1024, are superseded.

SEC. 11. EFFECTIVE DATE.

The provisions of this Revenue Procedure became effective November 19, 1962, the date they were published in the Internal Revenue Bulletin.