Rev. Proc. 80-25

Section 1. Purpose

This revenue procedure sets forth revised procedures with regard to applications for recognition of exemption from federal income tax under sections 501 and 521 of the Internal Revenue Code and with respect to revocation or modification of exemption rulings and determination letters, other than those subject to Rev. Proc. 80-30, page 685, this Bulletin (relating to pension, annuity, profit-sharing, and stock bonus plans). This revenue procedure also supplements Rev. Proc. 76-34, 1976-2 C.B. 656, with respect to the effects of section 7428 on the classification of organizations under sections 509(a) and 4942(j)(3). See Rev. Proc. 80-27, page 677, this Bulletin, for procedures under which exemption may be recognized on a group basis for subordinate organizations affiliated with and under the general supervision or control of a central organization. Also, see Rev. Proc. 72-5, 1972-1 C.B. 709, for information on applications for recognition of exemption filed by certain religious and apostolic organizations. Requests for rulings or determination letters generally are governed by the procedures outlined in Rev. Proc. 80-24, page 658, this Bulletin.

Sec. 2. Nature of Changes

This revenue procedure combines and updates the procedures previously set forth in Rev. Proc. 72-4, 1972-1 C.B. 706, relating to processing requests for exemption, Rev. Proc. 76-33, 1976-2 C.B. 655, relating to the appeal procedures with regard to adverse determination letters and revocation or modification of exemption rulings and determination letters, and Rev. Proc. 77-21, 1977-1 C.B. 586, relating to the issuance of determinations and related matters to which section 7428 of the Code applies. This is due to the establishment of a single appeals function in each region, headed by a Regional Director of Appeals. The new Appeals office now has responsibility for the appeals function formerly performed by the office of the Assistant Regional Commissioner (Employee Plans and Exempt Organizations). In line with the new appeals procedures, the certiorari appeal to the National Office previously provided has been eliminated. The right to seek technical advice from the National Office, however, has been expanded to include requests from both district and Appeals offices and, in certain cases, has been made mandatory (see Rev. Proc. 80-26, page 671, this Bulletin). Rev. Proc. 77-31, 1977-2 C.B. 540, relating to the appeals procedures regarding the imposition of certain taxes on organizations exempt under section 501 or 521, is being revoked since the Regional Director of Appeals now handles all appeals of additional tax determinations. Since appeals from exempt organizations on such matters will be handled in the same manner as other taxes, a separate revenue procedure is unnecessary. Regarding the effective date of revocation or modification of exemption letters, the general rule previously set forth in Rev. Proc. 72-4 has been revised to conform to the general rules concerning effective date as currently set forth in Rev. Proc. 80-24. Austin and Jacksonville are eliminated from the list of key districts since their functions have been taken over by Dallas and Atlanta, respectively. A reference to discussion of contrary authorities has been added.

Sec. 3. General

.01 When used in this revenue procedure, the term "key District Director" means the District Director of one of the 17 key district offices for exempt organization matters.

.02 The term "determination letter" refers to a letter issued by a key District Director, or an Appeals office in the case of an exemption application, in response to a written inquiry by an individual or an organization that applies to the particular facts involved, and to the principles and precedents previously announced by the National Office. This includes a letter issued on the basis of advice secured from the National Office pursuant to the procedures prescribed herein and in Rev. Proc. 80-26. The term "ruling" refers to a letter issued by the National Office.

.03 The declaratory judgment provisions of section 7428 of the Code, with regard to this revenue procedure, 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 an organization under section 501(c)(3) (charitable, educational, etc.); 170(c)(2) (deductibility of contributions); 509(a) (private foundation status); or 4942(j)(3) (operating foundation status).

Sec. 4. Filing and Processing Applications for Recognition of Exemptions

An organization seeking recognition of exempt status under section 501 or 521 of the Code is required to file an application with the key District Director for the Internal Revenue District in which is located the principal place of business or principal office of the organization. Following are the 17 key district offices that process the applications, the Internal Revenue districts covered by each, and the regional office designations:

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.01 A ruling or determination letter will be issued to an organization, provided its application and supporting documents establish that it meets the particular requirements of the section under which exemption is claimed. Any oral representation of additional facts or modification of facts as represented or alleged in the application for a ruling or determination letter must be reduced to writing over the signature of the taxpayer or authorized representative.

.02 Exempt status will be recognized in advance of operations if proposed operations can be described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements of the section under which exemption is claimed. A mere restatement of purposes or a statement that proposed activities will be in furtherance of such purposes will not satisfy this requirement. The organization must fully describe the activities in which it expects to engage, including the standards, criteria, procedures, or other means adopted or planned for carrying out the activities; the anticipated sources of receipts; and the nature of contemplated expenditures. Where the organization cannot demonstrate to the satisfaction of the Service that its proposed activities will be exempt, a record of actual operations may be required before a ruling or determination letter will be issued. In those cases where an organization is unable to describe fully its purposes and activities, a refusal to issue a ruling or determination letter will be considered an adverse determination from which administrative appeal rights will be afforded.

.03 Where an application for recognition of exemption does not contain the required information, the application may be returned to the applicant without being considered on its merits with an appropriate letter of explanation. In the case of an application under section 501(c)(3) of the Code that is returned, the applicant will also be informed of the time within which the completed application must be resubmitted in order for the application to be considered as a timely notice within the meaning of section 508(a).

.04 A ruling or determination letter recognizing exemption will not ordinarily be issued if an issue involving the organization's exempt status under section 501 or 521 of the Code is pending in litigation or is under consideration within the Service.

.05 In the case of an application under section 501(c)(3) of the Code, the 270-day period referred to in section 7428(b)(2) will be considered by the Service to begin on the date a substantially completed Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, is filed with or mailed 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, or has not completed one accounting period, 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;

ment is a complete and accurate copy of the original; and

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 docu-

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.

.06 If a Form 1023 does not contain all of the items set out in section 5.05, 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 Form 1023 is refiled with or remailed to the Service with the requested information, or, if remailed and a postmark is not evident, on the date the Service receives a substantially completed Form 1023.

.07 If the application for recognition of exemption involves an issue where contrary authorities exist, failure to disclose and distinguish significant contrary authorities may result in requests for additional information, which will delay action on the application (see section 6.06 of Rev. Proc. 80-24).

Sec. 6. Issuing Rulings or Key District Determination Letters With Respect to Exempt Status

.01 Under the general procedures outlined in Rev. Proc. 80-24, key District Directors are authorized to issue determination letters involving applications for recognition of exemption under sections 501 and 521 of the Code.

.02 A key District Director will refer to the National Office those applications that present questions the answers to which are not specifically covered by statute or regulations, or by a ruling, opinion, or court decision published in the Internal Revenue Bulletin. In addition, key District Directors will refer those applications that have been specifically reserved by revenue procedure and/or Internal Revenue Manual instructions for National Office handling for purposes of establishing uniformity or centralized control of designated categories of cases. The National Office will consider each such application, issue a ruling directly to the organization, and send a copy of the ruling to the key District Director. In the event of a conclusion unfavorable to the applicant, it will be informed of the basis for the conclusion and of its right to file a protest with and for a conference in the National Office. If a conference is requested, the conference procedures outlined in sections 7.02, 7.03, and 7.04 of Rev. Proc. 80-24 will be followed.

.03 If the key District Director proposes to recognize exemption of an organization to which the National Office had issued a previous contrary ruling or technical advice, the key District Director must seek technical advice from the National Office before issuing a determination letter. See Rev. Proc. 80-26.

.04 If at any time during the course of consideration of an exemption application the organization believes that its case involves an issue on which there is no published precedent or there is nonuniformity between districts, the organization should ask the key District Director to request technical advice from the National Office. See Rev. Proc. 80-26.

Sec. 7. Withdrawal of Applications

.01 Applications for recognition of exemption under section 501 or 521 of the Code may be withdrawn, upon the written request of a principal officer or authorized representative of the organization, at any time prior to the issuance of the ruling or determination letter. Even though the application is withdrawn, however, the application and all supporting documents will be retained by the Service and will not be returned to the organization.

.02 In the case of an application under section 501(c)(3) of the Code, a withdrawal will not be considered by the Service as either a failure to make a determination within the meaning of section 7428(a)(2) or as an exhaustion of administrative remedies within the meaning of section 7428(b)(2).

Sec. 8. National Office Post Review of Determination Letters

.01 The Exempt Organizations Division, or the Corporate Tax Division for cases under section 521 of the Code, in the National Office will review key district determination letters after issuance to assure uniformity in application of the statutes or regulations, or rulings, opinions, or court decisions published in the Internal Revenue Bulletin.

.02 Where the National Office takes exception to a key district determination letter, the key District Director will be advised. If the organization protests the exception taken, the file and protest will be returned to the National Office. The referral will be treated as a request for technical advice and sections 6, 7, and 8 of Rev. Proc. 80-26 will be followed.

Sec. 9. Protest of Adverse Determination Letters

.01 Upon the issuance of an adverse determination letter or a letter proposing revocation or modification of exempt status, the key District Director will advise the organization of its right to protest the determination by requesting Appeals office consideration. To do this, the organization must submit to the key District Director within 30 days from the date of the letter, a statement of the facts, law, and arguments in support of its position. The organization must also state whether it wishes an Appeals office conference.

.02 Any determination letter that is issued on the basis of National Office technical advice may not be appealed to the Appeals office regarding those issues that were the subject of the technical advice.

.03 Upon receipt of an organization's request for Appeals office consideration, the key district will, if it maintains its position, forward the request and the case file to the Chief of the appropriate Appeals office.

Sec. 10. Consideration at the Appeals Office

.01 The Appeals office, after considering the organization's protest and any additional information developed in conference, will advise the organization of its decision and issue the appropriate determination letter to the organization.

.02 Organizations should make full presentation of the facts, circumstances, and arguments at the initial level of consideration by the Appeals office, since submission of additional facts, circumstances, and arguments may result in suspension of appeal procedures and referral of the case back to the key district for additional consideration. Any oral representation of additional facts or modification of facts originally represented or alleged must be reduced to writing.

.03 If the Appeals office believes that an exemption or private foundation status issue is not covered by published precedent or that there is nonuniformity, the Appeals office must request technical advice from the National Office. Unless the Appeals office feels that the conclusions reached by the National Office should be reconsidered and promptly requests such consideration, the case will be disposed of by the Appeals office on the basis of the decision in the technical advice memorandum. See Rev. Proc. 80-26.

.04 If at any time during the course of Appeals office consideration the organization believes that its case involves an issue on which there is no published precedent or there is nonuniformity between districts, the organization should ask the Appeals office to request technical advice from the National Office. See Rev. Proc. 80-26.

.05 If the proposed disposition by the Appeals office is contrary to a prior National Office technical advice or ruling concerning tax exemption on the case, the proposed disposition will be submitted through the Office of the Regional Director of Appeals to the Assistant Commissioner (Employee Plans and Exempt Organizations), or, in a case under section 521 of the Code, to the Assistant Commissioner (Technical). Unless the Appeals office feels that the conclusions reached by the National Office should be reconsidered and promptly requests such consideration, the decision of the National Office will be followed by the Appeals office. In any event, the Assistant Commissioner will make the final decision.

Sec. 11. Exhaustion of Administrative Remedies for Declaratory Judgment Purposes

.01 Section 7428 of the Code, in part, requires that an organization seeking initial or continuing recognition of exemption under section 501(c)(3) must exhaust its administrative remedies by taking timely, reasonable steps to secure a determination prior to filing for declaratory judgment. Those steps and administrative remedies required to be exhausted within the Service are:

1 the filing of a substantially completed application Form 1023 pursuant to section 5.05 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 by the Service 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 sections 9 and 10, or appeal of a proposed adverse ruling pursuant to section 6.02 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 section 11.01, and the sending by certified or registered mail of a notice of final determination; or

2 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 section 11.01 will not be considered completed until the Service has had a reasonable time to act upon the appeal or request for consideration, as the case may be.

.04 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 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. 12. Effect of Rulings or Determination Letters Recognizing Exemption

.01 A ruling or determination letter recognizing exemption is usually effective as of the date of formation of an organization if its purposes and activities during the period prior to the date of the ruling or determination letter were consistent with the requirements for exemption. However, for special rules regarding organizations formed after October 9, 1969, applying for recognition of exemption under section 501(c)(3) of the Code, see section 508(a) and Rev. Rul. 77-208, 1977-1 C.B. 153. If the organization is required to alter its activities or to make substantive amendments to its enabling instrument, the ruling or determination letter recognizing its exempt status will be effective as of the date specified therein.

.02 A ruling or determination letter recognizing exemption may not be relied upon if there is a material change, inconsistent with exemption, in the character, the purpose, or the method of operation of the organization.

Sec. 13. Revocation or Modification of Rulings or Determination Letters Recognizing Exemption

.01 A ruling or determination letter recognizing exemption may be revoked or modified by a subsequent ruling or determination letter addressed to the organization, or by a revenue ruling or other statement published in the Internal Revenue Bulletin. The revocation or modification may be retroactive if the organization omitted or misstated a material fact, operated in a manner materially different from that originally represented, or, in the case of organizations to which section 503 of the Code applies, engaged in a prohibited transaction with the purpose of diverting corpus or income of the organization from its exempt purpose and such transaction involved a substantial part of the corpus or income of such organization. Where there is a material change, inconsistent with exemption, in the character, the purpose, or the method of operation of an organization, revocation or modification will ordinarily take effect as of the date of such material change. In cases where a ruling or determination letter was issued in error or is no longer in accord with the holding of the Service, retroactivity of the revocation or modification ordinarily will be limited to a date not earlier than that on which the original ruling or determination letter is modified or revoked.

.02 In the case of a revocation or modification, the protest and conference procedures are the same as set out in sections 9 and 10, including the right of the organization to request that the key District Director or the Chief, Appeals Office, seek technical advice from the National Office. If the case involves a status issue on which the National Office had issued a previous contrary ruling or technical advice, the key District Director must seek technical advice from the National Office.

.03 The provisions of sections 9 and 10 relating to protest and conference rights before a final revocation notice is issued are not applicable to matters where delay would be prejudicial to the interests of the Internal Revenue Service (such as in cases involving fraud, jeopardy, the imminence of the expiration of the statute of limitations, or where immediate action is necessary to protect the interests of the Government).

Sec. 14. Effect on Other Documents

Rev. Procs. 72-4, 76-33, and 77-21, 1977-1 C.B. 586, are superseded. Sections 3.01, 3.04, 4.02, 6.02, 6.04, and 8.02 of Rev. Proc. 76-34 are modified to the extent that this revenue procedure supersedes Rev. Procs. 72-4 and 76-33. Rev. Proc. 77-31, is revoked.

Sec. 15. Effective Date

This revenue procedure is effective June 30, 1980, the date of its publication in the Internal Revenue Bulletin.