The Determination Process

Posted on Wednesday, July 18, 2012

In order to receive tax exempt status under 501(c)(3) of the Internal Revenue Code, an organization must file an application for exemption with the IRS, Form 1023.  Ever wonder why it takes so long to receive that exemption letter?  Recently, Lois Lerner, Director of Exempt Organizations at the IRS, gave a speech at Georgetown University Law School giving an insight as to the reason for the delay.

Approximately 60,000 new applications for tax exemption are received each year.  Each application goes through a “technical screening” where each is sorted into one of four categories.

(1) Applications that can be approved immediately based on the completeness of the application and information submitted,
(2) Applications that need only minor additional required information in the file in order to approve the application,
(3) Applications that do not contain the information needed to be considered substantially complete, and
(4) Applications that require further development by an agent in order to determine whether the application meets the requirements for tax exempt status. 

Organizations whose applications fall into the fourth category are sent a letter informing them that the IRS needs more information.  This is where the additional waiting time is incurred.  Once a revenue agent with the proper level of experience has an opening, the agent notifies the organization that the case has been assigned, reviews the application and requests additional documentation necessary to determine whether the organization qualifies for tax exempt status.  Requested response dates are included on requests for additional information, but the organization can request additional time if needed.  The organization can also request additional time if it thinks it can answer questions differently than requested.   It is important that all information in this stage is submitted on paper so that documentation exists to go back to if there are ever any questions.  This process goes back and forth until the IRS determines if the organization qualifies for exempt status or is denied status.

If you have submitted your application and are waiting to hear back from the IRS, you can check on the IRS website to see what month’s applications are currently being assigned.  As of this post, the IRS is assigning applications received in November 2011.

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.

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