Question: A potential grantee submitted to us an IRS letter of determination that expired on August 30, 2008. The grantee said that, despite the expiration date, the letter of determination is treated as the grantee's permanent ruling. Is this true?
Answer: Yes. On September 9, 2008, the IRS issued temporary regulations that eliminate the advance ruling period for publicly supported charities. The temporary regulations, which are currently in effect, state that any IRS determination letter that contains an expiration date of June 9, 2008, or later should be treated as a permanent ruling. For example, an expiration date of August 30, 2008 should be disregarded and the letter may be treated as a permanent ruling. Note that this change does not affect other due diligence processes that a grantmaker may have put into place to verify an organization’s continuing public charity status (e.g., checking IRS Publication 78, contacting the IRS, or using a third-party provider such as GuideStar). In accordance with the transition rules issued by the IRS, a determination letter that expired prior to June 9, 2008, should be treated as an expired ruling and not as evidence of public charity status.
Background: Prior to this change, an organization that obtained public charity status would generally receive an advance letter ruling. Approximately five years after its formation, the organization would file with the IRS a form demonstrating that it met the public support test. The IRS has determined that a majority of organizations receiving an advance letter of determination were issued a permanent public charity ruling at the end of the prescribed period. For this reason, the IRS has chosen to streamline this part of the recognition process.
Under the temporary regulations, an organization applying for recognition of tax exempt status will be issued a permanent ruling if the organization can reasonably be expected to meet the public support test within five years of its formation. The IRS will presumably check the organization’s public support as calculated on Form 990, Schedule A, at the end of the five-year period to make sure it does, in fact, meet the public charity status requirements. As a grantmaker, one result of this regulatory change is that you will begin to see fewer and fewer IRS letters of determination with expiration dates. You may continue to rely on letters with listed expiration dates of June 9, 2008, or later, as long as the IRS has not published a notice indicating a change in the organization’s status.
For additional information, visit the IRS webpage explaining the elimination of the advance ruling process.