7.20.4. Automatic Revocation and Other Special Determination Issues

(1) EO includes two primary operational areas: Rulings and Agreements and Examinations.

(2) EO Rulings and Agreements (R&A) issues determination letters on exempt status, foundation classification, and other determinations related to exempt organizations. EO R&A also reviews and processes Form 8976.

(3) Organizations submit applications for recognition of tax-exempt status either electronically through Pay.gov when required (such as, Forms 1023, 1023-EZ, 1024, 1024-A, and 8940) or through the Cincinnati Accounts Management Campus Support (Campus Support) for all other requests. Form 8976 is submitted electronically via the Form 8976 Electronic Notice Registration System.

(4) Campus Support processes the user fee payment in the Letter Information Network and User Fee System (LINUS) and scans the application/request into the Modified EO-EP Determination System (MEDS). MEDS transmits the information to the Employee Plans/Exempt Organizations Determination System (EDS).

(5) Campus Support sends open hard copy case files to an IRS facility in Ogden, UT.

(6) Cases are generally processed electronically in MEDS. See IRM 7.22.4, Modified EO-EP Determination System (MEDS) User Manual, for specific instructions on using MEDS, including how to process cases.

(1) Rev. Proc. 2023-5, updated annually, sets forth procedures for issuing determination letters on issues under the jurisdiction of the Director, EO Rulings and Agreements. It explains the procedures for issuing determination letters on exempt status in response to applications for recognition of exemption from federal income tax under IRC 501 or IRC 521 (other than those subject to Rev. Proc. 2023-4, updated annually), private foundation classification, and other determinations related to exempt organizations. Rev. Proc. 2023-5 also provides guidance on the exhaustion of administrative remedies for purposes of declaratory judgment under IRC 7428 and guidance on applicable user fees for requesting determination letters.

(2) The Protecting Americans from Tax Hikes (PATH) Act of 2015 created IRC 506 requiring an organization described in IRC 501(c)(4) to notify the Secretary no later than 60 days after the organization is organized that it is operating as a IRC 501(c)(4) organization. The requirement to submit the notification applies to organizations that are described in IRC 501(c)(4) and organized after December 18, 2015, and to certain IRC 501(c)(4) organizations existing on that date. Additionally, Rev. Proc. 2016-41 sets forth procedures for IRC 501(c)(4) organizations submitting the notification required by IRC 506.

(1) EO Rulings and Agreements is responsible for issuing determination letters on exempt status, private foundation classification, and other determinations and issues related to exempt organizations. EO Rulings and Agreements is also responsible for reviewing and processing Form 8976.

(1) Exempt Organizations Determinations Quality Assurance (EODQA) reviews determination cases to ensure:

1. Technical accuracy

2. Adherence to written procedures

3. Uniform and impartial treatment of exempt organizations' interests while protecting the government's interest

4. Identification of unfavorable case patterns, trends affecting processing quality, problem areas, unique issues, and new or novel techniques that EOD specialists develop

(1) Commonly used abbreviations include:

(1) The procedures in this manual supplement case processing procedures described in:

• IRM 7.20.1, Exempt Organizations Determination Letter Overview

• IRM 7.20.2, Determination Letter Processing of Exempt Organizations

• IRM 7.20.3, Processing Foundation Classification and Miscellaneous Requests

• IRM 7.20.5, Review Procedures for EO Determinations

• IRM 7.20.6, Anti-Terrorism and Emerging Issues

• IRM 7.20.9, Processing Form 1023-EZ

(1) Conduct or obtain IDRS research on all cases to determine whether an organization is currently automatically revoked or actions need to be taken to prevent an erroneous automatic revocation. Research IDRS command code BMFOLO and BMFOLI. Research BMFOLT as necessary.

(2) Import the IDRS research into the MEDS Non-Disclosable folder.

(3) Review IDRS research and information in the case file to determine if the organization is correctly in Status 97 based on:

• Its date of formation

  Note: If an organization has changed its legal form after it was (or should be) automatically revoked, follow the procedures in this section and IRM 7.20.4.2.2, Reinstatement Effective Date and Other Case Processing.

• Its fiscal year month

  Note: Generally, the revocation date is not impacted by a change in FYM which occurred after exemption was granted. If the organization claims revocation is based on incorrect FYM, consider erroneous revocation procedures in IRM 7.20.4.2.7, Erroneous Revocations.

• Prior case processing information (such as ruling and effective date)

• Whether returns were filed

  Reminder: An organization’s filing of a return (for any one of the three years in question) by the return due date of the third year (including filed extensions) meets the filing requirement for those years to avoid automatic revocation.

Note: In general, if the organization didn’t file for exemption within 27 months of formation, do not push to Status 97. Grant exemption from submission date and send an email to the EO Correspondence Unit to have a TC 590 input. The subject line of the email will be "NON AR TC 590." The body of the email must include the organization’s name, EIN, Effective date, and Fiscal Year Month (FYM). See IRM 7.20.2.2.1, Effective Date of Exemption. Import the email into the MEDS Non-Disclosable folder.

(4) Request additional information if the organization’s date of formation and/or fiscal year month are unclear or unknown.

(5) Rev. Proc. 2023-5, updated annually, provides that relief available to IRC 501(c)(3), (9), (17), or (29) under Treas. Reg. 301.9100-3 won’t be granted in the following situations:

1. If granting relief would result in the organization's exemption being automatically revoked effective before the date of application.

2. If the period of limitation on assessment under IRC 6501(a) for any taxable year for which the organization claims exemption has expired prior to the date of application. The statute is generally three years.

3. If the organization is not required to apply for recognition of tax-exempt status in order to be tax-exempt.

(6) If you’re approving the case, but denying relief under Treas. Reg. 301.9100-3 because one of the three situations described above applies:

• Discuss the denial of relief with your manager.

• Call the organization to discuss.

• Prepare a Memo to File documenting the reason for the denial of relief.

• Send the correct determination letter (for example, Letter 947), along with Letter 6392, 9100 Effective Date.

• Have a TC 590 input, as explained above.

• Document each action taken in the CCR.

• Select the appropriate MEDS case category for why 9100 Relief wasn’t granted (for example, 9100 Relief - Not granted (not required to apply)).

  Note: When relief isn’t granted, do not prepare an adverse determination or an approval letter with an adverse issue.

  Reminder: Document all actions taken and managerial concurrence in the CCR.

(7) Determine whether automatic revocation is correct.

(1) Determine the appropriate reinstatement effective date following the procedures listed in Rev. Proc. 2014-11. Tax-exempt status may be reinstated under Rev. Proc. 2014-11, Section 4, 5, 6, or 7.

(2) If the organization submits Form 990 Schedule B as its financial data required for the reinstatement process or otherwise references the Form 990 for its financial information:

1. Call or write to the organization to explain Form 990 isn't considered part of the application package, but if used, it’s available for public inspection.

2. Include a concise summary of any phone conversation on the case chronology record (CCR) documenting whether the organization agreed to use the Form 990 as its financial data.

3. Send a letter to the organization requesting written confirmation if unable to contact by phone or if the organization doesn’t want to disclose Schedule B.

(3) Follow the chart below to determine under which section of Rev. Proc. 2014-11 the organization qualifies for reinstatement.

(4) The organization meets the requirements for retroactive reinstatement under Rev. Proc. 2014-11, Section 4, if:

• It was eligible to file either Form 990-EZ or Form 990-N for each of the three consecutive years that it failed to file;

• It didn’t previously have its tax exemption revoked per IRC 6033(j);

• It submitted its application for reinstatement and user fee within 15 months from the later of the date of the automatic revocation letter or the date the IRS posted its name on the auto-revocation list on TEOS; and

• The organization’s failure to file was not intentional and that it has put in place procedures to file in the future.

  Note: An organization indicates it’s applying for Section 4 streamlined retroactive reinstatement by checking a box on the electronic application. Application forms provide for an organization to attest that it has met the applicable requirements.

(5) The organization meets the requirements for retroactive reinstatement under Rev. Proc. 2014-11, Section 5, if it:

• Isn’t eligible to apply under Section 4;

• Submits the appropriate application and user fee for reinstatement within 15 months from the later of the date of the automatic revocation letter or the date the IRS posted its name on the auto-revocation list on TEOS; and

• Includes a reasonable cause statement (described in Section 8.01 of Rev. Proc. 2014-11) sufficient to establish reasonable cause for failing to file a required annual return or notice for at least one of the three consecutive years in which it failed to file.

  Note: An organization indicates it’s applying for Section 5 streamlined retroactive reinstatement by checking a box on the electronic application. Application forms provide for an organization to attest that it has met the applicable requirements.

(6) The organization meets the requirements for retroactive reinstatement under Rev. Proc. 2014-11, Section 6, if it:

• Submitted its application for reinstatement and user fee more than 15 months from the later of the date of the automatic revocation letter or the date the IRS posted its name on the auto-revocation list on TEOS; and

• Includes a reasonable cause statement (described in Section 8.02 of Rev. Proc. 2014-11) sufficient to establish reasonable cause for failing to file a required annual return or notice for each of the three years in which it failed to file.

  Note: An organization indicates it’s applying for Section 6 streamlined retroactive reinstatement by checking a box on the electronic application. Application forms provide for an organization to attest that it has met the applicable requirements.

(7) Submission date will be granted under Rev. Proc. 2014-11, Section 7, if they check the appropriate box on the application and include the appropriate user fee.

(8) Process the organization’s application as a "no gap" reinstatement if it:

1. Submits the appropriate application before the due date of its third required return (based on its formation date);

2. Isn’t approved before the due date of the third return (based on its formation date); and

3. Has not filed appropriate returns to prevent automatic revocation.

   Note: Determine a "no gap" reinstatement’s effective date using standard processing procedures rather than automatic revocation procedures. See IRM 7.20.4.2.3, Closing Automatic Revocation Cases, "No Gap."

(9) Determine the effective date of exemption as follows:

(10) When closing a case with a request for 9100 relief:

1. Select the appropriate MEDS case category:

• 9100 Relief - Approved (requires manager concurrence)

• 9100 Relief - Not granted (relief would result in Auto Rev)

• 9100 Relief - Not granted (period of limitation expired)

• 9100 Relief - Not granted (not required to apply)

• 9100 Relief - Not granted (other)

2. Prepare a Memo to File documenting whether relief was granted and why.

3. Ensure that a TC590 is input, if appropriate, to prevent the organization from being erroneously revoked.

4. Continue to process cases using "no-gap" procedures as described in IRM 7.20.4.2.3 and push to Status 97 if the taxpayer’s exemption is automatically revoked under IRC 6033(j) on or after the application date but before issuance of a favorable determination letter.

(1) Follow case closing procedures in IRM 7.20.2 except as otherwise specified.

(2) Enter the appropriate effective date and include the required selective paragraphs on the determination letter. Enter the appropriate effective date and deductibility date on the MEDS Closing Tab following the chart below:

(3) Include a selective paragraph or addendum specifying the revenue procedure under which reinstatement is granted on all reinstatement case determination letters.

(4) Use other automatic revocation selectable paragraphs, as necessary.

(5) For automatic revocation cases, send an encrypted email to the EO Correspondence Unit to have a TC 590 posted. The subject will read "AR TC 590". The body of the email must include ALL of the following:

• Organization's name

• Employer Identification Number (EIN)

• Fiscal Year Month (FYM)

Note: The Correspondence Unit will respond with the date you can close the case. Hold the case until that date and then close in MEDS.

Reminder: Document all actions taken in the CCR and import all case-related emails into the MEDS Non-Disclosable folder.

(6) If the organization was a parent or a subordinate in a group exemption, complete a Form 2363-A, Request for IDRS Input for BMF/EO Entity Change, to remove the group exemption information. See IRM 7.20.4.7, Subordinates Leaving a Group Ruling for Individual Exemption, for instructions on completing Form 2363-A.

(7) If an organization didn’t respond to a request for additional information, follow failure to establish (FTE) or incomplete response denial procedures in IRM 7.20.2. Close FTE cases in Status 12.

(1) If a subordinate’s tax-exempt status is revoked for failure to file for three years, the subordinate must apply for individual exemption in order for it to have its tax-exempt status reinstated.

(2) A subordinate can’t have its tax-exempt status reinstated through the group ruling holder (parent organization) adding it back onto the group exemption roster. The IRS won’t add currently revoked subordinates to a GEN.

(3) Process subordinate reinstatement requests using the procedures for automatic revocation and IRM 7.20.4.7, Subordinates Leaving a Group Ruling for Individual Exemption.

(4) Subordinates of a group ruling whose parent organization’s individual exemption is automatically revoked must apply for individual exemption (or join another group exemption). IDRS updates a subordinate who was in good standing but whose parent is automatically revoked to Status 27. These applications aren’t processed as reinstatement cases. Follow standard case processing procedures in IRM 7.20.4.7, Subordinates Leaving a Group Ruling for Individual Exemption.

(1) A tax-exempt organization that changes its form or place of organization (for example, a trust incorporates) may need to submit a new application for exemption.

1. The effective date of exemption for the new organization is generally the formation date of the new organization if it timely filed the application and otherwise meets requirements for exemption.

2. If a new organization is formed (for example, a trust incorporates), the new organization is required to obtain a new EIN. An organization is generally not required to obtain a new EIN for any other changes in form or place of organization (for example, an association incorporates or a corporation reincorporates in a different state). (IRM 7.20.2.2.2, Employer Identification Numbers). See IRC 6109, Publication 1635, and Rev. Proc. 2018-15.

   Note: Multiple active entities can’t share an EIN.

(1) If an organization is in Status 97 and the revocation date on TEOS is later than the correct revocation date, send an encrypted email to the EO Correspondence Unit with the following information:

• Subject line: Revocation Date Correction

• Organization name

• EIN

• Revocation date listed on Tax Exempt Organization Search

• Correct revocation date

• Formation date

• Fiscal year end

• Subsection

(2) Import the email into the MEDS Non-Disclosable folder.

(3) Continue processing as an automatic revocation case.

(1) An organization could be automatically revoked in error or prematurely for a number of reasons, including:

• The organization’s EIN establishment date on IDRS is before the tax year of the organization’s date of formation.

• The organization had a determination letter indicating it wasn’t required to file annual returns but IDRS was incorrectly coded.

• A prior application for exemption was incorrectly processed.

• The organization was affiliated with a governmental entity as described in Rev. Proc. 95-48.

  Note: An organization that meets a filing exception under Rev. Proc. 95-48 may, but isn't required to, notify the IRS that it meets the requirements (Rev. Proc. 95-48, Section 5.02). Therefore, the system could "erroneously" revoke the exemption. If the organization can show that it met the requirements of Rev. Proc. 95-48 during the period for which it was revoked, treat the revocation as erroneous. In this situation, refund any user fee that was paid.

• TC 590s weren’t appropriately entered when closing a prior case.

(2) Items that may identify an organization as erroneously revoked include:

• Revocation within one year of ruling date

• Second revocations

• Organization indicates it was erroneously revoked

(3) Secure your manager’s concurrence when you determine erroneous revocation due to IRS error.

(4) If the revocation is erroneous, send an encrypted email to the EO Correspondence Unit with the following:

• Subject line: Erroneous Revocation

• Organization name

• EIN

• Formation date

• Fiscal year month

• Revocation date

• Explanation of why the revocation is erroneous

• Statement whether the case is closed as Status 12 with a user fee refund or if it is being processed for exemption

(5) Import the email into the MEDS Non-Disclosable folder.

(6) The chart below describes the special processing procedures that apply to an erroneous revocation.

(1) Currently, IRS systems use an organization’s EIN establishment date rather than its formation date to determine when to automatically revoke an organization's exempt status. See the chart below for specific guidance.

(1) An organization that was automatically revoked more than once isn't eligible for reinstatement under Rev. Proc. 2014-11, Section 4, but may be reinstated under the procedures in other sections. Items that may identify an organization that was or should be automatically revoked more than once include:

• A prior reinstatement approval case on EDS

• BMFOLO lists 97 as the current status and the current status date is after 2014-06

• Tax Exempt Organization Search lists old revocation, revocation posting, and reinstatement dates

(2) The IRS isn't systematically updating TEOS to reflect multiple automatic revocations. To manually update TEOS, send an encrypted email to the EO Correspondence Unit with the following:

• Subject line: Add to TEOS

• Organization name

• EIN

• Formation date

• The most recent revocation date

• A statement confirming that the organization was correctly revoked a second time

(3) Import the email into the MEDS Non-Disclosable folder. Close the case following the IRM 7.20.4.2.3, Closing Automatic Revocation Cases, procedures.

(1) When processing an application from a foreign organization, make sure the application for recognition of exemption includes:

• Where the organization was formed or created and why it’s seeking U.S. tax exemption.

• English translations of information/documents written in a foreign language.

• All financial data in U.S. dollars.

(2) In general, foreign organizations are subject to automatic revocation of exemption for failure to file annual returns for three consecutive years, similar to domestic organizations.

1. If a foreign organization files an application to be recognized as exempt only from the submission date of application, follow standard case processing procedures.

2. If a foreign organization applies for exemption within 27 months of its formation date, recognize exemption as of the formation date (if it otherwise qualifies for exemption).

3. Foreign organizations and organizations located in U.S. possessions, whose gross receipts from sources within the U.S. are normally $50,000 or less and which didn’t engage in significant activity in the U.S. (other than investment activity), if they claim U.S. tax exemption or are recognized by the IRS as tax exempt, are generally required to submit Form 990-N if they choose not to file Form 990 or Form 990-EZ. Request that a NON AR TC 590 is input at case closing to prevent the organization being placed on the auto-revocation list.

(3) Foreign organization approvals (not including those formed in U.S. territories) are subject to mandatory review. See IRM 7.20.5.2.1.

(1) In addition to any closing procedures specified above, follow standard case closing procedures (see IRM 7.20.2, Determination Letter Processing of Exempt Organizations) with the following exceptions noted in this section.

(2) If approving the determination request for recognition of exemption of a foreign organization, including those formed U.S. territories, prepare:

(3) Enter Form 990, Form 990-PF, and Form 990-T filing requirements similar to those applicable to domestic organizations. For circumstances where a foreign organization may be eligible to file Form 990-N, see Rev. Proc. 2011-15.

(4) For organizations with employees, enter the following employment tax filing requirements:

(5) If contributions to a foreign organization are deductible by donors under a tax treaty (for example, Canada), enter a deductibility code of "4."

(6) If the organization doesn’t qualify for exemption, follow the adverse case closing procedures in IRM 7.20.2.4, Adverse Determinations.

(7) If closing a case as failure to establish (FTE):

1. Prepare Letter 1314, EO Determination Request Closed - Failure to Establish, using the appropriate selective paragraph.

2. Enter closing Status 11 if the case involves a U.S. territory and Status 12 for other foreign organizations.

   Exception: For a FTE reinstatement case, close the case Status 12.

3. Input the appropriate Form 1120 or Form 1041 filing requirements only if the organization has U.S. income.

(8) Foreign organizations (not including those formed in U.S. territories) are subject to mandatory review. See IRM 7.20.5.2.1, Cases Subject to Mandatory Review.

(1) Review the case to ensure the application:

1. Is complete.

2. Contains no indication of inurement.

3. Contains no other potential issues (other than potential political issues).

(2) Process the application according to the situations described below:

(1) Review electronically submitted Form 8976 notifications in submission date order.

1. Ensure all required fields have been completed.

2. Verify the correct user fee was paid.

3. Perform IDRS research.

(2) After review:

(3) Time frames for processing From 8976:

1. The tax examiner processes the form within 2 workdays.

2. The group manager either approves it or returns it to the tax examiner within 2 workdays.

(4) When rejecting a Form 8976:

1. Prepare one copy of Form 14268, User Fee Refund Request. Name it "Form 14268 - User Fee Refund."

2. Email the completed Form 14268 to the manager.

   Note: Don’t refund the user fee if you reject a Form 8976 for insufficient user fee (or user fee didn’t process).