The Issue
The IRS oversees eligibility and compliance for tax-exempt status of 501(c)(3) organizations. Some pending and ongoing issues are listed below. Additional guidance on IRS rules can be found on the IRS Charities and Nonprofits webpage and in the table below.

UPDATES

IRS EO division releases 2013 workplan
The Internal Revenue Service Exempt Organizations (EO) division has released its 2012 annual report and priorities for the 2013 workplan. The 2012 annual report features continued work around the automatic revocations project, improvements made to determinations processes, quality assurance, and highlights  the variables involved in EO compliance projects. The 2013 workplan includes a number of ongoing projects, including examinations of the international activities of charities, using Form 990 information in compliance efforts related to compensation, political activity, and unrelated business income tax (UBIT), and colleges and universities.

IRS issues proposed rules on foreign charitable organization determinations

The IRS has issued proposed rules (REG-134974-12) that would identify a broader class of tax practitioners for private foundations to rely on for their written advice to make a determination that a foreign organization us a charitable organization. The current rules under tax code Sections 4942 and 4945 say a determination is ordinarily considered to be made in good faith if it is based on an affidavit of the foreign organization or an opinion of counsel of the grantor or grantee. However, the proposed rules would allow a good faith determination to be based on written advice given by a qualified tax practitioner, defined as an attorney, certified public accountant, or enrolled agent, as long as it is subject to the requirements in Circular 230.

Program Related Investments
The IRS has released proposed rules that provide guidance on program-related investments (PRIs), which are investments whose primary purpose is to accomplish one or more of a private foundation's exempt purposes. The proposed regulations (REG-144267-11) provide a series of new examples illustrating investments that qualify as PRIs and do not modify existing regulations. The examples embody the following principles:

• A PRI may accomplish a variety of charitable purposes—such as advancing science, combating environmental deterioration, and promoting the arts.
• An investment that funds activities in a foreign country may further the accomplishment of charitable purposes and qualify as a PRI. 
• The existence of a potentially high rate of return on an investment does not, by itself, prevent the investment from qualifying as a PRI. 
• A private foundation’s acceptance of an equity position in conjunction with making a loan does not necessarily prevent the investment from qualifying as a PRI. 
• Credit enhancements, including guarantees, can qualify as PRIs.  
• PRIs may provide loans and capital to individuals or entities that are not themselves within a charitable class if the recipients are the instruments through which a private foundation accomplishes its exempt purpose.

Independent Sector submitted comments on July 16, 2012.

Guidance

• The IRS has requested public comment on information collections under section 6104 on disclosure of applications for tax-exempt status, annual reports, and return information of exempt organizations.
  
• IRS releases Exempt Organizations (EO) division's 2012 Work Plan. Learn more
  
• The IRS released Publication 526, Charitable Contributions (rev. 2011), which explains how to claim a deduction for charitable contributions and discusses organizations that are eligible to receive deductible charitable contributions.
  
• The IRS has updated Publication 892 on how to appeal an IRS decision on tax-exempt status.

Exempt Organizations Select Check
The IRS has developed a new online search tool, the Exempt Organizations Select Check, that allows users to search for organizations that are eligible to receive tax-deductible charitable contributions, have had their tax-exempt status automatically revoked because of failure to file for three consecutive years, or have filed a Form 990-N annual electronic notice (e-Postcard).

Background
IRS Oversight and Resources
Organizations that fail to file an information return (Form 990, 990-EZ, 990-PF, 990-N) for three consecutive years will automatically lose their tax-exempt status. Because this requirement went into effect for tax year 2007, thousands of organizations were subject to automatic revocation of their tax-exempt status.

The IRS released on June 8, 2011, a list of organizations whose tax-exempt status has been revoked for failure to meet the filing threshold. You can also check the database maintained by the Urban Institute's National Center for Charitable Statistics to see if an organization is in danger of revocation.

Form 990 – the IRS made major revisions to the Form 990 annual information return, which must be filed electronically depending on the size or type of the organization.

Charitable reforms in the Pension Protection Act – the IRS has also issued new rules to implement changes enacted by the Pension Protection Act including guidance for donor advised funds, supporting organizations, and deductibility of certain charitable donations.

Lobbying and political activity – of nonprofit organizations must be conducted in compliance with tax law.  See guidance under Basics of Nonprofit Lobbying.

IRS Exempt Organizations Division 2012 Work Plan
On February 8, 2012, the IRS released the 2012 Work Plan for the Exempt Organizations Division.

In addition to continuing work begun in 2011 and prior years, the Exempt Organizations’ 2012 Work Plan includes the following initiatives of that may be of particular interest to IS members:

• Section 501(c)(4), (5) and (6) organizations. These organizations can declare themselves as tax exempt without a determination from IRS. EO plans to review organizations in these categories to ensure that they have classified themselves correctly and are complying with applicable rules. In 2012, EO will send a questionnaire to these organizations to assess compliance in this area.
• Political Activity. In 2012, EO will use information from past projects and new information from Form 990s to focus examinations on serious allegations of impermissible political intervention. A committee of career civil servants will assess information from outside sources to identify cases to refer for examination.
• 990-T and UBIT. In 2012, EO will look at organizations that report unrelated business activities but have not filed a Form 990-T. They will be preparing for an upcoming UBIT project.
• Colleges and Universities. EO plans to issue a final report on findings drawn from a wide-ranging review of tax-exempt colleges and universities. The report is based on a compliance questionnaire sent to 400 colleges and universities and examinations of selected colleges and universities. An interim report was issued in May 2010.
• Disaster Relief Communications. EO plans to identify specific compliance issues that are most commonly associated with disaster relief efforts, and will develop a communications plan to help educate organizations about rules and responsibilities in this area.
• Group Rulings. EO plans to continue the analysis of the group exemption issue begun by the Advisory Committee on Tax Exempt and Government Entities in June 2011 by developing a questionnaire to be sent to a cross-section of group ruling holders. Under current law, the parent or central organization applies to the IRS for group exemption and the central organization is able to include or exclude subordinates from its group based on whether they are complying with IRS rules. Based on experiences with the auto-revocation process, EO plans to expand educational efforts for group ruling members to ensure greater compliance.
• Mortgage Foreclosure Assistance Organizations. EO will focus on examining the activities of exempt organizations that have been established for the purpose of providing mortgage foreclosure assistance to determine whether they are fulfilling their exempt purpose and complying with tax law.
• Private Foundations. Based on information reported on the Form 990-PF, EO plans to examine a selection of the largest private foundations.
  

Read the entire work plan.