4.75.34  Procedures for Disposition of IRC 501(p) Cases

4.75.34.1  (04-15-2006)
Introduction

  1. These procedures provide information for examiners on closing cases involving organizations that have been designated as terrorist organizations pursuant to IRC 501(p), which was enacted as part of the Military Family Tax Relief Act of 2003 (P.L.108-121). Such designations are announced in the Internal Revenue Bulletin and apply to organizations designated as supporting or engaging in terrorist activity or supporting terrorism under the Immigration and Nationality Act, the International Emergency Economic Powers Act, or the United Nations Participation Act of 1945.

4.75.34.2  (04-15-2006)
Suspension of IRC 501(p) Cases

  1. IRC 501(p)(1) suspends the exemption from tax under subsection (a) with respect to any organization described in IRC 501(p)(2).

  2. Under IRC 501(p)(3), suspension of an organization's tax exemption begins on the date of the first publication of a designation or identification with respect to the organization, as described above, or the date on which section 501(p) was enacted, whichever is later. This suspension continues until all designations and identifications of the organization are rescinded under the law or Executive Order under which such designation or identification was made.

  3. Under IRC 501(p)(4), no deduction is allowed under any provision of the Internal Revenue Code for any contribution to an organization during any period in which the organization's tax exemption is suspended under section 501(p). Thus, for example, no charitable contribution deduction is allowed under IRC 170 (relating to the income tax).

  4. An organization whose exempt status has been suspended under section 501(p) does not file Form 990 and is required to file the appropriate federal income tax returns for the taxable periods beginning on the date of the suspension. The organization must continue to file all other appropriate federal tax returns, including employment tax returns, and may also have to file federal unemployment tax returns.

  5. If an organization is included on the Treasury Department's terrorist list and is "suspended" under section 501(p), there are several implications, including:

    • Contributions to the organization are not deductible;

    • Contributions to the organization are illegal;

    • The organization's assets are frozen;

    • The organization's records are seized and held by the Federal Bureau of Investigation (FBI) or other federal agency; and

    • No organization or person may challenge a suspension in any administrative or judicial proceeding relating to the federal tax liability of such organization.

4.75.34.3  (04-15-2006)
Processing IRC 501(p) Cases

  1. If an examiner is assigned a case involving an organization whose tax-exempt status is subsequently suspended under section 501(p), the examiner will cease all examination activities and notify his/her manager. After consulting with the manager, the examiner will:

    1. Close the case from the group using Disposal Code 36, Surveyed After Initial Contact; and

    2. Place Form 3198 on the front of the case file and check the Mandatory Review section, indicating that the case is a 501(p) closure.

  2. A closing letter will be mailed to the taxpayer by the reviewer. See Exhibit 1 for a sample closing letter.

Exhibit 4.75.34-1  (04-15-2006)
501(p) Closing Letter

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