7.20.9 Processing Form 1023-EZ

Manual Transmittal

September 28, 2018

Purpose

(1) This transmits revised IRM 7.20.9, Exempt Organizations Determination Letter Program, Processing Form 1023-EZ.

Material Changes

(1) Incorporated Interim Guidance Memorandum TEGE-07-1116-0027, Interim Guidance on Preparing Form 1023-EZ Determination Letters.

(2) Incorporated Interim Guidance Memorandum TEGE-07-0117-0002, Interim Guidance on Processing Form 1023-EZ.

(3) Incorporated Interim Guidance Memorandum TEGE-07-0118-0003, Processing Form 1023-EZ - 2018 Updates.

(4) Rearranged IRM 7.20.9.4, General Case Processing.

(5) Incorporated editorial changes throughout the IRM.

(6) Added new program, scope, and objectives content at IRM 7.20.9.1, as per IRM 1.11.2.2.5.

(7) Changed call timing in IRM 7.20.9.4.6.2 to call 2 weeks before the response due date.

(8) Edited the document for plain language, as required per the Plain Writing Act of 2010.

Effect on Other Documents

This supersedes IRM 7.20.9 dated June 17, 2016. This IRM incorporates Interim Guidance Memoranda TEGE-07-1116-0027, Interim Guidance on Preparing Form 1023-EZ Determination Letters, TEGE-07-0117-0002, Interim Guidance on Processing Form 1023-EZ, and TEGE-07-0118-0003, Processing Form 1023-EZ - 2018 Updates.

Audience

Tax Exempt and Government Entities
Exempt Organizations

Effective Date

(09-28-2018)

Margaret Von Lienen
Director, Exempt Organizations
Tax Exempt and Government Entities

Overview

  1. Purpose: This IRM provides general case processing procedures for Exempt Organizations (EO) Determinations tax examiners and specialists to process Form 1023-EZ determination letter requests.

  2. Audience: The procedures in this manual apply to all EO employees processing Form 1023-EZ determination requests.

  3. Policy Owner: Director, Exempt Organizations.

  4. Program Owners: Exempt Organizations.

Background

  1. Form 1023-EZ, Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code, is a shortened version of Form 1023, Application for Recognition of Exemption Under Section 501(c) (3) of the Internal Revenue Code. Any organization can file Form 1023 to apply for recognition of exemption from federal income tax under IRC 501(c)(3), but only certain organizations are eligible to file Form 1023-EZ.

  2. Rev. Proc. 2018-5 (updated annually) includes:

    • Eligibility criteria to submit Form 1023-EZ

    • Procedures for requesting exemption under IRC 501(c)(3) using Form 1023-EZ

    • Standards for issuing determination letters based on Form 1023-EZ

  3. Organizations are required to complete the eligibility worksheet before submitting the Form 1023-EZ application and must attest they’re eligible to file Form 1023-EZ. Form 1023-EZ instructions contain the Form 1023-EZ Eligibility Worksheet.

  4. EO Determinations is responsible for processing Form 1023-EZ.

  5. The IRS won’t accept a Form 1023-EZ that isn’t completed per Rev. Proc. 2018-5 (updated annually). Non-acceptance of Form 1023-EZ is referred to as a rejection in this manual.

  6. These procedures apply to tax examiners and EO Determinations specialists, except as specifically noted.

Authority

  1. Rev. Proc. 2018-5 (updated annually) sets forth procedures for issuing determination letters on issues under the jurisdiction of the Director, EO Rulings and Agreements. It explains the procedures for issuing determination letters on exempt status in response to applications for recognition of exemption from federal income tax under Section 501 or 521 (other than those subject to Rev. Proc. 2018-4, updated annually), private foundation status, and other determinations related to exempt organizations. Rev. Proc. 2018-5 also provides guidance on the exhaustion of administrative remedies for purposes of declaratory judgment under IRC 7428 and guidance on applicable user fees for requesting determination letters.

Responsibilities

  1. EO Rulings and Agreements is responsible for issuing determination letters on exempt status, private foundation status, and other determinations related to exempt organizations.

Program Controls

  1. EODQA reviews determination cases to ensure:

    1. Technical accuracy

    2. Adherence to written procedures

    3. Uniform and impartial treatment of exempt organizations' interests while protecting the government's interest

    4. Identification of unfavorable case patterns, trends affecting processing quality, problem areas, unique issues, and new or novel techniques that EOD specialists develop

Common Abbreviations

  1. Commonly used abbreviations include:

    Abbreviation Name
    ATC Anti-Terrorism Coordinator
    CCR Case Chronology Record
    CLTG Comprehensive List of Terrorists and Groups
    EDS EP/EO Determination System
    EIN Employer Identification Number
    IDRS Integrated Data Retrieval System
    IRC Internal Revenue Code
    LINUS Letter Information Network User-fee System
    NTEE National Taxonomy of Exempt Entities
    TEDS Tax Exempt Determination System

Form 1023-EZ Processing Systems and Case Assignment

  1. Applicants using Form 1023-EZ apply for tax-exempt status electronically through www.pay.gov. The IRS doesn’t accept or process a paper Form 1023-EZ.

  2. Cincinnati Submission Processing Center (CSPC) processes the electronic user fee payment in the Letter Information Network User-fee System (LINUS). Applications are established electronically in the Tax Exempt Determination System (TEDS).

  3. EO uses the Employee Plans/Exempt Organizations Determination System (EDS) to process applications. TEDS and EDS communicate to process and close cases. Cases are generally worked in TEDS, but determination letters and final case closings are done in EDS.

  4. See IRM 7.22.4, Tax Exempt Determination System (TEDS) User Manual, for procedures for processing determination letter requests in TEDS.

  5. See IRM 7.22.8, Exempt Organizations Determination System (EDS) User Manual, for procedures for processing determination letter requests in EDS.

  6. TEDS is programmed to automatically identify a statistically valid random sample of Form 1023-EZ applications for pre-determination review. TEDS identifies pre-determination cases as they’re established and automatically updates them to Status 71 until they are assigned to an EO Determinations group inventory or a specialist.

  7. The centralized unassigned inventory (Status 61) holds cases not selected for pre-determination review until assigned to a tax examiner.

  8. An EO Determinations unassigned group inventory (Status 75) holds tax examiner referral cases until assigned to a specialist.

  9. Assigned case statuses:

    • Cases are assigned to a tax examiner in Status 62.

    • Pre-determination review cases are assigned to a specialist in Status 72.

    • Tax examiner referral cases are assigned to a specialist in Status 52.

Time Frames

  1. The Form 1023-EZ submission date is determined without considering any previously submitted application for recognition of tax exemption (including a Form 1023-EZ, Form 1023, Form 1024, or Form 1024-A) that the organization withdrew or the IRS rejected.

  2. Cases are assigned in submission date order.

  3. Time frames for cases not selected for pre-determination review unless otherwise specified in this IRM:

    1. Case is assigned to a tax examiner within six work days from the submission date.

    2. Tax examiner processes case and either requests specialist involvement, refers it to a specialist, or prepares it for case closing and submits to the group manager for review within two work days.

    3. Group manager either approves or returns to tax examiner within two work days.

    4. If group manager returns a case to the tax examiner (Status 64), the tax examiner takes action within two work days.

    5. After manager approval in TEDS, designated employees complete required closing actions (see IRM 7.20.9.4.7) within five work days.

  4. Cases selected for pre-determination review and tax examiner referral cases are:

    1. Assigned to a specialist within 15 calendar days from the submission date.

    2. Processed by the specialist according to the time frames in IRM 7.20.2, Determination Letter Processing of Exempt Organizations, unless otherwise specified in this IRM.

General Case Processing

  1. Complete all steps of this section before requesting specialist involvement (see IRM 7.20.9.4.5).

  2. Check the Comprehensive List of Terrorists and Groups (CLTG) and document your findings on the case chronology record (CCR) (see IRM 7.20.6, Anti-Terrorism and Other Emerging Issues, for CLTG check procedures).

    1. If a CLTG match is identified, complete Form 14503, Potential Terrorist Connection Checksheet, and email it to the Anti-Terrorism Coordinator (ATC) following the procedures in IRM 7.20.6.

    2. When the ATC responds, do the following:

      If the ATC responds Then
      It’s not a match Continue to process the case.
      It’s a match or more information is needed to confirm identity and the application meets rejection criteria Reject the application (see IRM 7.20.9.4.2).
      It’s a match or more information is needed to confirm identity and the case is not rejected Tax Examiner:
      1. Document the results on the CCR.

      2. Email *TE/GE-EO-Determinations Questions the organization’s name, EIN, Form 14503, and the ATC’s email, with the subject line PTCC.

      3. Submit the case to your manager for transfer to the designated group.



      Specialist: Process the case (see IRM 7.20.9.4.6).
  3. Research LINUS to verify the organization paid the correct user fee. If the user fee is insufficient or did not process, reject the application (see IRM 7.20.9.4.2).

  4. Check EDS for other I cases pending with the IRS and document the results on the CCR. If there’s another I case pending with the IRS, reject the 1023-EZ application.

  5. Check EDS to see if the organization previously submitted a Form 1023-EZ, Form 1023, Form 1024, or Form 1024-A and the previous case(s) was closed in Status 03 (rejected), Status 04 (withdrawn), or Status 02 (denied):

    If the case is assigned to a Then
    Tax Examiner
    1. Email *TE/GE-EO-Determinations Questions the organization’s name and EIN, with the subject line Prior [insert closing code] Closure.

      Exception:

      Don’t involve a specialist if research shows a prior EZ case was previously rejected due to an insufficient user fee payment, a requested change in foundation classification, or failure to meet the requirements of Rev. Proc. 2014-11, Section 4.

    2. Document the results on the CCR.

    3. See IRM 7.20.9.4.5 for situations requiring specialist involvement.

    Specialist Process the case (see IRM 7.20.9.4.5.1).
  6. Research IDRS and add the printouts to the case file. Research command code BMFOLO as well as BMFOLI and BMFOLT (as necessary). You may also need to check INOLES, FRM49, NAMEE, or ENMOD.

    If Then
    The organization is currently or previously exempt under a subsection other than IRC 501(c)(3) or IRC 501(c)(4) per BMFOLO and not in status 36 Reject the application (see IRM 7.20.9.4.2).
    If the organization is exempt under IRC 501(c)(4), is in status 36 (or in status 97 with a prior status 36), and has NOT filed any returns or Form 990-N Continue processing Form 1023-EZ.
    If the organization is exempt under IRC 501(c)(4), is in status 36 (or in status 97 with a prior status 36), and has filed any returns or Form 990-N Reject the application (see IRM 7.20.9.4.2).
    The organization is currently exempt under IRC 501(c)(3) (Current Status Code 01) and not a subordinate in a group exemption
    1. Contact the organization and explain it’s already exempt.

    2. Prepare Letter 5239, No Determination Issued per Rev. Proc. or Because Organization Already Exempt.

    3. Close Form 1023-EZ in Status 12.

    4. Initiate a user fee refund.

    Exception:

    If ruling date is prior to listed formation date, see below.

    The organization is previously revoked on BMFOLO (Current Status Code 22) Reject the application (see IRM 7.20.9.4.2).
    The organization has a prior ruling date on BMFOLO, is in Status 97, and was not a subordinate in a group ruling
    • If the ruling date is the same as or after the formation date listed on Form 1023-EZ then continue with processing

    • If the ruling date is prior to the formation date listed on Form 1023-EZ then:
      Tax Examiner:

      1. Email *TE/GE-EO-Determinations Questions the organization’s name, EIN, formation date, and state of formation, with the subject line Status 97/01 Ruling Date Prior to Formation Date.

      2. Document the results on the CCR.

      3. See IRM 7.20.9.4.5, for situations requiring specialist involvement.



      Specialist: Process the case (see IRM 7.20.9.4.6).

    The organization is requesting reinstatement under Rev. Proc. 2014-11, Section 4, and IDRS research shows the applicant is seeking a foundation classification that is different from the classification it had at the time of automatic revocation Reject the application IRM 7.20.9.4.2.
    The organization is requesting reinstatement under Rev. Proc. 2014-11, Section 7, and IDRS research shows the applicant was a private foundation at the time of automatic revocation and is seeking reinstatement as a public charity
    1. Refer the case to a specialist.

    2. Document the referral reason on CCR.

    3. Submit the case to your manager for transfer to the designated group.

  7. Review the first two items on the application.

    If Then
    The organization selected yes indicating its gross receipts have or will exceed $50,000 Reject the application (see IRM 7.20.9.4.2).
    The organization selected yes indicating it has assets in excess of $250,000 Reject the application (see IRM 7.20.9.4.2).
  8. Review the name and address on the application.

    1. If the organization’s name on IDRS includes an ampersand symbol (&), correct the name in TEDS to include the symbol and print a new AIS sheet before closing the case.

    2. If the organization’s name has a word split between line 1 and 2 on TEDS, correct the name and print a new AIS sheet before closing the case.

    3. If "LLC" (Limited Liability Company) is part of the organization’s name on IDRS or Form 1023-EZ or IDRS indicates the organization may be formed as a for profit entity (e.g., IDRS indicates PARTNER or MEMBER), do the following:

      If the case is assigned to a Then
      Tax Examiner
      1. Email *TE/GE-EO-Determinations Questions the organization’s name, EIN, formation date, state of formation, and issue with the subject line Organizational Structure.

      2. Document the results on the CCR.

      3. See IRM 7.20.9.4.5 for situations requiring specialist involvement.

      Specialist
      1. Research the state’s website to determine if the organization is formed as an LLC or a for profit entity.

      2. If organization is formed as an LLC or for profit entity, reject Form 1023-EZ (see IRM 7.20.9.4.2).

      3. If not formed as an LLC or for profit entity, continue processing the case.

      Note:

      Because many states require a limited liability company to include that phrase (or "LLC" ) as part of its legal name, additional research is warranted to determine eligibility to file Form 1023-EZ.

    4. If the organization’s address doesn’t appear to be complete (e.g., lists only a number as the street address or does not contain a street number), check the address on IDRS and do the following before continuing to process the case:

      If Then
      The IDRS address appears to match the provided address

      Example:

      IDRS displays “PO Box” before the same number listed on the form along with the same city, state, and zip code, or the IDRS street name, city, state, and zip code match the form but also provides a street number.

      Complete the address in TEDS to match IDRS.
      If IDRS address doesn’t appear to match the provided address Contact the organization to confirm the complete address. If confirmed, complete the address in TEDS. Document the conversation in the CCR.
      If unable to contact the organization Update a street number only address to reflect “PO Box” with the number (consistent with the Instructions for Form 1023-EZ). Don’t change a street name with no number listed.

      Note:

      If the letter is returned undeliverable, update the organization’s address to a board member’s address provided on the application.

  9. If the EIN on the application doesn’t match the record in IDRS, do the following:

    If the EIN on the application Then
    Is incorrect and you determine the correct EIN based on IDRS research Correct the EIN in TEDS, email *TEGE-EO-Adjustments requesting an EIN correction in LINUS, and continue with case processing.
    Doesn’t show up on BMFOLO but shows up on NAMEE Tax Examiner: Enter a TC 000 to reactivate the EIN and continue with case processing.

    Specialist: Email *TE/GE-EO-Correspondence Unit and ask them to enter a TC 000 to reactivate the EIN, and continue with case processing.
    Doesn’t show up on BMFOLO but shows up on ENMOD Continue with case processing.
    Doesn’t show up on BMFOLO, NAMEE, or ENMOD and you can’t determine the correct EIN based on IDRS research Reject the application (see IRM 7.20.9.4.2).
  10. Review the Form 1023-EZ case and verify all required fields of the application are complete. If any of the required fields are not complete, reject the application (see IRM 7.20.9.4.2).

    Note:

    The organization must complete all fields on Form 1023-EZ except for Part V, Reinstatement After Automatic Revocation.

  11. Review the activity description to determine if the organization’s mission and activities are within the scope of IRC Section 501(c)(3).

    If the mission or activities Then
    Appear contrary to exemption requirements
    1. Email *TE/GE-EO-Determinations Questions the organization’s name, EIN, and mission/activity description, with the subject line Non 501(c)(3) Mission/Activity.

    2. Document the results on the CCR.

    3. See IRM 7.20.9.4.5 for situations requiring specialist involvement.

    Are incomplete Reject the application or:
    1. Email *TE/GE-EO-Determinations Questions the organization’s name, EIN, and mission/activity description, with the subject line Incomplete Mission/Activity.

    2. Document the results on the CCR.

    3. See IRM 7.20.9.4.5 for situations requiring specialist involvement.

    Indicate the organization is not eligible to file Form 1023-EZ (for example, it appears the organization falls under worksheet item 12, 13, or 14)
    1. Email *TE/GE-EO-Determinations Questions the organization’s name, EIN, and mission/activity description, with the subject line Not Eligible to File Form 1023-EZ.

    2. Document the results on the CCR.

    3. See IRM 7.20.9.4.5 for situations requiring specialist involvement.

    .

  12. Review the National Taxonomy of Exempt Entities (NTEE) code the organization selected.

    1. Cross reference the NTEE code with those listed in the following table that don’t generally describe an organization exempt under IRC 501(c)(3) (potentially non-501(c)(3) NTEE codes).

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      ≡ ≡ ≡ ≡ ≡ ≡ ≡
    2. If the organization selected a potentially non-501(c)(3) NTEE code (listed in the table above), do the following:

      If the case is assigned to a Then
      Tax Examiner
      1. Email *TE/GE-EO-Determinations Questions the organization’s name, EIN, NTEE code, mission/activity description, and website address (if provided), with the subject line Non (c)(3) NTEE Code.

      2. Document the results on the CCR.

      3. See IRM 7.20.9.4.5 for situations requiring specialist involvement.

      Specialist Process the case (see IRM 7.20.9.4.6).
    3. If the organization selected an NTEE code that doesn’t match the mission/activity description, do the following:

      If the case is assigned to a Then
      Tax Examiner
      1. Email *TE/GE-EO-Determinations Questions the organization’s name, EIN, NTEE code, and mission/activity description with the subject line Description and NTEE Code Don’t Match.

      2. Document the results on the CCR.

      3. See IRM 7.20.9.4.5 for situations requiring specialist involvement.

      Specialist Process the case (see IRM 7.20.9.4.6).
    4. If the organization selected an NTEE code that is not listed in the Instructions for Form 1023-EZ (invalid NTEE code), do the following:

      If the case is assigned to a Then
      Tax Examiner
      1. Email *TE/GE-EO-Determinations Questions the organization’s name, EIN, NTEE code, mission/activity description, and website address (if provided), with the subject line Invalid NTEE Code.

      2. Document the results on the CCR.

      3. See IRM 7.20.9.4.5 for situations requiring specialist involvement.

      Specialist Process the case (see IRM 7.20.9.4.6).
  13. Review Item 1 under Part IV, Foundation Classification. If the organization selected yes indicating it is a church, school, or hospital, reject the application (see IRM 7.20.9.4.2).

Effective Date of Exemption

  1. Use the date of formation, Form 1023-EZ Part V, and IDRS research (BMFOLO, BMFOLI, and BMFOLT) to determine the effective date of exemption.

  2. If an organization has filed required returns or notices for three consecutive years, determine the effective date of exemption as follows:

    If the organization submitted Form 1023-EZ Then
    Within 27 months from the end of the month in which it was organized Use the formation date as the effective date of exemption and year of deductibility.
    More than 27 months from the end of the month in which it was organized Use the submission date as the effective date of exemption and year of deductibility.

    Note:

    If the EIN establishment date on BMFOLO is a tax year prior to the effective date, email the Correspondence Unit to request a TC 590 at case closing to prevent an erroneous automatic revocation (see IRM 7.20.4.2, Automatic Revocation).

  3. If an organization has failed to file required returns or notices for three consecutive years, determine the effective date of exemption as follows:

    If the organization Then
    Requests retroactive reinstatement under Rev. Proc. 2014-11, Section 4, and doesn’t meet the requirements Reject the application (see IRM 7.20.9.4.2.
    Requests retroactive reinstatement under Rev. Proc. 2014-11, Section 4, and meets the requirements
    • Grant exemption as of the revocation date.

    • If the deductibility year on IDRS is the same as or prior to the formation date on the application, the deductibility year will be the formation year on the application.

    • If the deductibility year on IDRS is missing or after the formation date on the application, the deductibility year will be the year of revocation.

    Requests reinstatement under Rev. Proc. 2014-11, Section 7 Grant exemption as of the submission date and deductibility year as of the submission year.
    Doesn’t request reinstatement under Rev. Proc. 2014-11, Section 4 or Section 7 Grant exemption as of the submission date and deductibility year as of the submission year.
  4. If an organization hasn’t filed required returns or notices for three consecutive years, verify the organization is listed correctly:

    • In Status 97 on BMFOLO

    • On the automatic revocation list on Tax Exempt Organization Search

  5. If the organization hasn’t filed required returns or notices and is not in Status 97 and/or listed correctly on Tax Exempt Organization Search, follow the auto revocation procedures in IRM 7.20.4.2, Automatic Revocation, to correct its status.

Rejections

  1. Reject a Form 1023-EZ for the following reasons:

    1. The organization didn’t complete all required fields of Form 1023-EZ.

    2. The organization has a pending I case in any open status.

    3. The organization requests retroactive reinstatement under Rev. Proc. 2014-11, Section 4, but doesn’t meet the requirements of Section 4.

    4. The EIN on the application doesn’t show up on BMFOLO, NAMEE, or ENMOD, and you can’t determine the correct EIN based on IDRS research.

    5. The user fee payment is insufficient or did not process.

    6. The organization isn’t eligible to file Form 1023-EZ.

      Example:

      Organization is formed as an LLC or for profit entity according to the state website, the organization was previously revoked (Current Status Code 22), or other ineligible reason listed on the Eligibility Worksheet in the Instructions for Form 1023-EZ.

    7. The organization provides an inaccurate date of organization.

    8. The organization doesn’t respond to an additional information request letter (see IRM 7.20.9.4.6).

    Reminder:

    "Rejected" applications are not accepted applications per Rev. Proc. 2018-5 (updated annually).

  2. When rejecting a Form 1023-EZ, prepare Form 14268, User Fee Refund Request. Print and attach an EDS case print and a LINUS print to Form 14268.

    Exception:

    Don’t refund the user fee if you reject a Form 1023-EZ for insufficient user fee (or user fee didn’t process) or because the organization didn’t respond to an additional information request.

  3. If you identify more than one rejection reason, include all the reasons in the rejection letter.

Withdrawal of Form 1023-EZ

  1. An organization may withdraw Form 1023-EZ only if an authorized individual requests it in writing before EO Determinations issues a determination letter (see IRM 7.20.2.5.6).

Change in Subsection (Specialist)
  1. If an organization requests a change in subsection by submitting Form 1024 or Form 1024-A to replace Form 1023-EZ, follow the procedures in IRM 7.20.2.3.4.1, Change in Subsection/Application Form During Case Processing, to withdraw Form 1023-EZ and process Form 1024 or Form 1024-A.

Erroneous Revocation

  1. If IDRS research shows that an organization was erroneously revoked, do the following:

    1. Email the erroneous revocation information to *TE/GE-EO-Correspondence Unit.

    2. Verify that the Correspondence Unit will correct the organization’s exempt status on IDRS and/or Tax Exempt Organization Search.

    3. Continue processing as follows:

    If the organization Then
    Was previously exempt under IRC 501(c)(3) Close the case Status 12 and initiate a user fee refund.
    Wasn’t previously exempt under IRC 501(c)(3) Reject the application (see IRM 7.20.9.4.2.

Tax Examiner Requests Specialist Involvement (Tax Examiner)

  1. To request specialist involvement, email *TE/GE-EO-Determinations Questions the organization’s name, EIN, and issue. You must request specialist involvement for:

    1. An organization whose previous Form 1023-EZ, Form 1023, Form 1024, or Form 1024-A was rejected (closed Status 03), withdrawn (closed Status 04), or denied (closed Status 02)

      Exception:

      Do not request specialist involvement if the prior application was rejected due to an insufficient user fee, a requested change in foundation classification, or Rev. Proc. 2014-11, Section 4, requirements not being met.

    2. An organization with a ruling date prior to the formation date, in Status 97, and not a subordinate in a group ruling

    3. An organization with LLC as part of its name or indications of for profit status (e.g., IDRS indicates PARTNER or MEMBER)

    4. A potentially non-501(c)(3) mission/activity

    5. An incomplete mission/activity

    6. A mission/activity that isn’t consistent with the NTEE code

    7. A mission/activity description that indicates the applicant is ineligible to file Form 1023-EZ

    8. A potentially non-501(c)(3) NTEE code

    9. An invalid NTEE code

  2. Prior to requesting specialist involvement, complete all steps listed in IRM 7.20.9.4. If the application has more than one issue requiring specialist involvement, send one email listing all issues.

  3. Don’t request specialist involvement if rejecting the application.

Specialist Involvement (Specialist)
  1. Review tax examiner requests for specialist involvement and verify the reason for the request.

    Note:

    If you determine that a specialist should work the case (see scenarios below), advise the tax examiner to have the case assigned to a designated group. The case is referred to as a Tax Examiner Referral Case (see IRM 7.20.9.4.6).

  2. For an organization submitting Form 1023-EZ after a prior application (Form 1023-EZ, Form 1023, Form 1024, or Form 1024-A) was closed Status 02, 03, or 04, advise the tax examiner to have the case assigned to a designated group.

  3. For an organization with a ruling date prior to the formation date, in Status 97, and not a subordinate in a group ruling, conduct IDRS and/or internet research (e.g., state website) and do the following:

    If the formation date listed on the application Then advise the tax examiner to
    Appears to be correct and organization does not appear to have formed a new legal entity Continue processing the case.
    Appears to be correct because organization formed a new legal entity Have the case assigned to a designated group.
    Doesn’t appear to be correct Have the case assigned to a designated group.
  4. For an organization with LLC as part of their name or indications of for profit status, research the state’s website and do the following:

    If the organization is Then advise the tax examiner to
    Formed as an LLC or for profit entity according to the state’s website Reject the application.
    Not formed as an LLC or for profit entity according to the state’s website Continue processing the case.
    Not clear on whether it is formed as an LLC or for profit organization Have the case assigned to a designated group.

    Note:

    Because many states require a limited liability company to include that phrase (or "LLC" ) as part of its legal name, additional research is warranted to determine eligibility to file Form 1023-EZ.

  5. For issues with the mission/activity description:

    If the mission/activity description indicates Then advise the tax examiner to
    A 501(c)(3) mission/activity Continue processing the case.
    A potentially non 501(c)(3) mission/activity Have the case assigned to a designated group.
    The NTEE code and mission/activity aren’t consistent Have the case assigned to a designated group.
    The mission/activity description is incomplete Reject the (incomplete) application or have the case assigned to a designated group.
    The applicant is ineligible to file Form 1023-EZ Reject the application.
  6. For an invalid or potentially non-501(c)(3) NTEE code, review the organization’s website, if available, conduct internet research, and do the following:

    If based on research, the organization’s activities Then advise the tax examiner to
    Qualify under IRC 501(c)(3) Continue processing the case. If an invalid NTEE code was selected, provide an appropriate NTEE code to the tax examiner.
    Don’t appear to qualify under IRC 501(c)(3) or can’t be determined Have the case assigned to a designated group.

Pre-determination Review and Tax Examiner Referral Cases (Specialist)

  1. In addition to the case assignment and processing procedures outlined in this IRM and IRM 7.20.2, review IDRS, EDS, the secretary of state’s website to verify the organizational test is met, internet research (including the organization’s website if listed), and any recently filed Forms 990 on all pre-determination review cases (as applicable and available).

    Note:

    For tax examiner referral cases, only review information as needed to address the identified referral issue.

  2. If the reviewed information shows the organization is ineligible to file Form 1023-EZ (e.g., state website shows LLC or organization’s website shows it is a hospital, etc.), reject the application (see IRM 7.20.9.4.2).

  3. Send Letter 1312, Request for Additional Information, requesting additional information on all pre-determination review cases. Send Letter 1312 on tax examiner referral cases as needed. Follow the procedures and requirements for requesting additional information in IRM 7.20.2 except as specifically noted here as well as in IRM 7.20.9.4.6.1 and IRM 7.20.9.4.6.2.

    1. For a pre-determination review case, request: an organizing document (if unable to print from state website and include in the letter), a more detailed activities description, financial information, and details regarding specific activities indicated in Part III of Form 1023-EZ, as applicable. Ask additional questions as needed, including:

      If information shows Then add to Letter 1312 a
      Organization doesn’t meet IRC 501(c)(3) organizational test requirements Request to amend the organizing document (using the relevant streamline question as appropriate).
      A significant difference between the date of formation on Form 1023-EZ and the date listed on the state website Question to address the date of formation issue.
      Organization may not qualify for exemption under IRC 501(c)(3) (such as inurement, political activity, better classified under another subsection, etc.) Question to address the potentially disqualifying information and share a copy of internet printouts in the information request letter.
      Activities or grants outside of the United States Question to address foreign activities and grants (see IRM 7.20.6).

      Note:

      For pre-determination review cases, complete Form 14503, Potential Terrorism Connection Checksheet, if foreign activities or grants are indicated (per IRM 7.20.6).

    2. For tax examiner referral cases, do the following (see also IRM 7.20.9.4.5.1):

      If the issue is Then research or ask for information as needed to determine
      A CLTG potential match Identity of potential match (see IRM 7.20.6).
      An invalid or potentially non-501(c)(3) NTEE code The organization’s activity/code.
      A ruling date prior to the formation date (Status 97) and was not subordinate in a group ruling Formation date or entity type (request organizing document).
      An LLC or other indication of for profit status If organization is formed as a for profit.
      Prior application (Form 1023-EZ, Form 1023, Form 1024, or Form 1024-A) closed Status 02, 03, or 04 Eligibility to file Form 1023-EZ and qualification for exemption.
      Unclear, incomplete, or potentially non-501(c)(3) mission/activity description Qualification for exemption.
      The organization is requesting reinstatement under Rev. Proc. 2014-11, Section 7, and IDRS research shows the applicant was a private foundation at the time of automatic revocation and is seeking reinstatement as a public charity If organization will change its requested classification to private foundation.

    Reminder:

    Enter follow-up dates on the CCR.

Received Response to Information Request
  1. Document the date of receipt on the CCR.

  2. Review the response to ensure the organization meets Form 1023-EZ eligibility criteria (see IRM 7.20.9.4.2). If the organization doesn’t meet all eligibility criteria, reject the application.

  3. If there’s a discrepancy between the foundation classification requested and the best foundation classification for which the organization qualifies, address the issue. Consider calling the organization to discuss any possible change. Document any risk taken on a memo to file.

  4. Ensure the organization meets the IRC 501(c)(3) organizational and operational tests and do the following:

    If Then
    You need additional information to make a determination Prepare and mail Letter 1312 following the procedures in IRM 7.20.2.
    The organizational test isn’t met Request the organization amend its organizational document (using the relevant streamline question as appropriate). Prepare and mail Letter 1312.
    Either:
    • The operational test isn’t met

    • Both the organizational and operational aren’t met

    Follow proposed adverse determination procedures in IRM 7.20.2 (or IRM 7.20.3, Processing Foundation Classification and Miscellaneous Requests).
    You don’t need additional information and both the organizational and operational tests are met Close the case as an approval.
No Response to Information Request
  1. Two weeks before the response due date, call an authorized contact for the organization (IRM 7.20.1.7, Disclosure) to ask if there are any questions about the information requested, remind him/her of the upcoming due date, case closing, and potential loss of user fee if a response isn’t received by that time. Explain that the case may be rejected if there is no response. If there’s no answer, leave a message with the information (disclosure rules apply, IRM 11.3.2.6.1, Leaving Information on Answering Machines/Voice Mail).

    Note:

    If requested, grant an extension of 14 days or less. Base an extension on the request’s facts and circumstances. Document extensions in the CCR. (Managers can approve longer extensions as needed.)

  2. If the organization doesn’t respond by the due date, reject the application.

    Caution:

    Before rejecting the application, allow adequate time to receive mailed responses (see IRM 7.20.2.5.5, Failure to Establish).

Case Closing

  1. Prepare the appropriate determination letter, including the appropriate selective paragraphs and addenda in the letter (see Form 1023-EZ EDS Closing Worksheet for paragraph and addendum information).

    Letter Number Letter Prepared in Type of Closure
    947 EDS Approval as a public charity
    1076 EDS Approval as a private foundation
    5048 EDS Approval of U.S. territory as a public charity (see IRM 7.20.4)
    5049 EDS Approval of U.S. territory as a private foundation (see IRM 7.20.4)
    1049 EDS Rejection
    2244 EDS Withdrawal
    5239 Word document Other closing (organization currently exempt)
    4036 Word document Proposed adverse determination
    1079 Word document Approving exemption with adverse issue

    Reminder:

    Print an additional copy of the letter if there is an OAR on the case and see IRM 7.20.2.5.3, Operation Assistance Requests.

  2. Prepare Form 2363-A, if applicable.

    Note:

    Complete Form 2363-A for a subordinate (GEN) requesting individual exemption or for a group parent that no longer holds a group exemption.

  3. Prepare a Special Handling Notice, if applicable.

    Reminder:

    Check the TC 590 box on every auto revocation reinstatement case.

  4. Input closing information (see Form 1023-EZ EDS Closing Worksheet and Document 6379, Information Systems Codes FY 2018 Quick Reference for EO Employees, updated annually) as follows:

    If closing a Then
    TEDS case
    1. Input closing information on Case Information, EO Closing Data screen and hit OK to push update to EDS.

      Note:

      Don’t input a Closing Letter Number.

      Exception:

      Don’t enter closing information for rejections or withdrawals.

    2. Enter the closing code and appropriate TEDS Case Category (categories).

      Note:

      Rejections, pre-determination review cases, tax examiner referrals cases, and auto-revocation cases all have special case categories.

    3. Update case to Status 74PC.

    4. Write closing status (i.e., 06, 09, 01, 03, etc.) and effective date of exemption (YYYYMM) (if applicable) on upper right corner of top document (e.g., AIS or Special Handling Notice) on case file.

    Hard copy case Enter closing information in EDS.
  5. Print Form 1023-EZ, AIS, TEDS CCR, and any documents that you imported into TEDS.

  6. Assemble case file documents for scanning in the following order (top to bottom):

    • Special Handling Notice

    • Documents to be forwarded to other functions (Form 2363-A, Form 14268, etc.)

    • AIS

    • Final Letter Control Sheet (peach)

    • Two copies of final letter (organization and file copies)

    • Disclosable Documents Control Sheet (yellow)

    • All disclosable documents in the order listed in IRM 7.20.2.5.1.1, Administrative Case File, including Form 1023-EZ

    • Non-Disclosable Documents Control Sheet (blue)

    • All non-disclosable documents in the order listed in IRM 7.20.2.5.1.1 (TEDS CCR, copy of Form 2363-A or Form 14268, IDRS prints, etc.)

      Note:

      Each folder requires all three control sheets regardless of whether the case has documents to be scanned in that category. Don’t insert a “no documents” sheet if there are no documents in that category.

  7. Submit the case to your manager for review.

  8. After the manager reviews and approves the case closing in TEDS and the case is in Status 57 on EDS, the manager gives the cases to a designated tax examiner who will complete the necessary case closing actions including inputting and printing Form 8670 (see IRM 7.21.5.5, Case Closing).

  9. See the following for additional case closing information/assistance:

    • IRM 7.20.2.4.2, Proposed Adverse Case Closing

    • IRM 7.20.2.5, Case Closing

    • IRM 7.20.2.5.1, Case File Assembly

    • IRM 7.20.2.5.3, Operation Assistance Request (OAR)

    • IRM 7.20.2.5.4, Approvals

    • IRM 7.20.2.5.5, Failure to Establish (FTE)

    • IRM 7.20.2.5.6, Withdrawals

    • IRM 7.22.4, Tax Exempt Determination System (TEDS) User Manual

    • IRM 7.22.8, EP/EO Determination System (EDS) User Manual