The Internal Revenue Service (the “IRS”) has modified the rules that apply to requests for additional information from the IRS Exempt Organizations Determinations unit (“EO Determinations”) in connection with tax exemption petitions and related determinations. Applicants will have significantly less time to reply to Form 1023 information requests under the new regulations (and IRS staff have less discretion in granting applicants extensions of time to respond to such requests).
Old Process of Responding to Form 1023 Information Request
Previously, an applicant seeking a tax exemption or other related finding had 21 days to respond to a Form 1023 information request, which could be extended by an additional 14 days as a matter of routine. (Depending on the circumstances, EO Determinations personnel would frequently grant extra extensions beyond the 21 + 14-day intervals.)
If the applicant did not answer by the extended deadline, EO Determinations would put the case on hold and offer the applicant another 90 days to provide the needed information (this suspense status was communicated to the applicant in a letter known as the “90-day letter”).
If the applicant did not respond to the IRS with the information requested by the end of those 90 days, EO Determinations closed the file for “Failure to Establish.” In such cases, the user fee submitted with the application was not refunded.
New Process of Responding to Form 1023 Information Request
Instead of the 21 + 14-day extensions, the new rules give applicants a 28-day window to reply to a Form 1023 information request (unless otherwise mentioned in the request), with extensions granted on a case-by-case basis and subject to EO Determinations manager (rather than just agent) approval.
Any future extensions will typically be limited to 14 days or less under the new processes but may be longer, depending on the nature of the extra information requested. There is no other 90-day timeframe if the taxpayer has not given the requested information by the end of the due date, plus any extensions: EO Determinations will be made, and user fees will not be refunded.
The guidelines don’t indicate what happens after a case is “closed.” Still, it appears that an applicant would have to resubmit their tax exemption or related determination application and pay another user fee to have it evaluated by EO Determinations.
Suppose an applicant submits the requested additional information after the case has already been closed. In that case, the new procedures instruct the EO agent to consult with their manager about the next steps, leaving open the possibility that the issue could be reopened without the applicant having to submit a new application or pay a new user fee.
Related Post: Form 1023 Questions Posted by IRS
The new procedures direct EO Determinations employees to call applicants before sending a written request for additional information. They are further instructed to explain that the request is coming, verify the applicant’s mailing address, and call again three (3) days before the response due date to remind the applicant of the upcoming deadline.
With these developments, applicants and their advisers must keep a close eye on their IRS determination applications to avoid missing the deadline for responding to IRS requests for additional information or requesting extensions of time to answer such requests.
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Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations. Ellis is licensed to practice in Washington and Arizona and advises nonprofits on federal tax and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.