On September 9, 2008, the IRS adopted regulations that eliminate the requirement that new groups applying for 501(c)(3) tax-exempt status seek an advance ruling on their public charity status. Under the new regulations, all new 501(c)(3) groups will automatically be classified as a public charity (as opposed to a private foundation) for the first five years. To qualify for this treatment, the group must be able to demonstrate in its Form 1023 application that it reasonably expects to receive qualifying public support.
For the first five years, the group will maintain its public charity status regardless of how much public support it actually receives. After the initial five year period, the IRS will start to monitor whether the group receives the public support necessary to qualify as a public charity. It will do this based on the group's annual IRS Form 990 return. The time period that the IRS will review in making its determination is the current year and the preceding four years.
These new rules replace the two-step procedure that existed before. Under the old rules, an organization had to seek an advance ruling that it would be publicly supported and then had to demonstrate at the end of five years that it met the required public support test.
The current IRS Form 1023 tax exemption application, revised June 2006, does not reflect these changes. Before filling in your Form 1023 application, go to the IRS website at www.irs.gov to see if a newer Form 1023 is available. If not, fill out the Form 1023 (June 2006 version) according to the instructions in the book, but ignore the book's instructions to Part IX and Part X. Instead, follow the IRS's instructions to these parts posted on their website (see "Errata Sheet for Form 1023" at www.irs.gov).
For more information on the new rules, including transition rules that apply to organizations that have already received their advance ruling, see "Elimination of the Advance Ruling Process" on the IRS website at www.irs.gov.
Effective date:
Sep. 09, 2008
This update affects these Nolo products:
