New IRS Regulations Streamline Tax-exempt Approval Status
WASHINGTON - The Internal Revenue Service Treasury Department issued new
regulations that will streamline the approval process for organizations seeking
tax-exempt status as publicly supported charities.
 The
new regulations do away with the so-called advance rulings that granted public
charity status for an initial five-year period but required exempt organizations
to demonstrate, after the initial period, that they in fact received a
substantial part of their support from public sources to receive a final
determination letter. The IRS was able to eliminate the advance rulings process
because of the recent redesign of the Form 990, the tax return filed by
organizations exempt from federal income tax.
"The revised Form 990
enhances transparency for exempt organizations and makes it easier for them to
show that they are 'publicly supported' charities, rather than private
foundations," said IRS Commissioner Doug Shulman.
Private
foundations under federal law are subject to more restrictions on the way they
operate than publicly supported charities. To apply for exempt status either as
a private foundation or as a publicly supported charity, an organization must
file a Form 1023, the application for recognition of tax exemption. Over the
years, approximately 95 percent of exempt organizations that received advance
rulings were later recognized as publicly supported charities at the end of the
five-year period.
The IRS will use the new Form 990 and other traditional techniques to
continue to ensure organizations are complying with the rules for publicly
supported charity status on an ongoing basis.
Organizations that have
already received an advance ruling under the old regime, but are still in their
first five years of existence, can use their advance ruling letter as their
final determination letter. In addition to the streamlined approval process, the
new regulations include other modifications necessary to implement the
redesigned Form 990. Organizations will begin filing the new Form 990 for their
2008 tax year.
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