[Federal Register Volume 82, Number 125 (Friday, June 30, 2017)]
[Rules and Regulations]
[Pages 29730-29733]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-13866]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9819]
RIN 1545-BM06


Guidelines for the Streamlined Process of Applying for 
Recognition of Section 501(c)(3) Status

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations that allow the 
Commissioner of Internal Revenue to adopt a streamlined application 
process that eligible organizations may use to apply for recognition of 
tax-exempt status under section 501(c)(3) of the Internal Revenue Code 
(Code). The final regulations affect organizations seeking recognition 
of tax-exempt status under section 501(c)(3).

DATES: 
    Effective Date: These regulations are effective on June 30, 2017.
    Applicability Dates: For dates of applicability, see Sec. Sec.  
1.501(a)-1(f), 1.501(c)(3)-1(h), and 1.508-1(c).

FOR FURTHER INFORMATION CONTACT: Peter A. Holiat at (202) 317-5800 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    Since 1969, section 508 of the Code has required an organization 
seeking tax-exempt status under section 501(c)(3), as a condition of 
its

[[Page 29731]]

exemption, to notify the Secretary of the Treasury (or his delegate) 
that it is applying for recognition of exempt status in the manner 
prescribed in regulations, unless it is specifically excepted from the 
requirement. Longstanding regulations under Sec. Sec.  1.501(a)-1, 
1.501(c)(3)-1, and 1.508-1 had required all organizations applying for 
recognition of section 501(c)(3) exempt status to submit a properly 
completed and executed Form 1023, ``Application for Recognition of 
Exemption Under Section 501(c)(3) of the Internal Revenue Code,'' (see 
Sec.  1.508-1(a)(2) as contained in 26 CFR part 1, revised April 1, 
2014) and to submit with, and as part of, the application, a detailed 
statement of its proposed activities (see Sec. Sec.  1.501(a)-
1(b)(1)(iii) and 1.501(c)(3)-1(b)(1)(v) as contained in 26 CFR part 1, 
revised April 1, 2014). Detailed procedures for applying for 
recognition of exemption are included in annual revenue procedures and 
in the instructions for Form 1023. See Sec.  601.601(d)(2)(i)(b).
    On July 2, 2014, final and temporary regulations (TD 9674) 
authorizing the Commissioner to adopt a streamlined application process 
that eligible organizations may use to apply for recognition of tax-
exempt status under section 501(c)(3) were published in the Federal 
Register (79 FR 37630). The final and temporary regulations were 
effective and applicable on July 1, 2014. The 2014 final regulations 
removed and reserved certain paragraphs of the longstanding final 
regulations addressed by corresponding paragraphs of the new temporary 
regulations. Under the temporary regulations, the IRS instituted the 
streamlined application process on Form 1023-EZ, ``Streamlined 
Application for Recognition of Exemption Under Section 501(c)(3) of the 
Internal Revenue Code,'' the detailed procedures for which have been 
provided in annual revenue procedures, most recently in Rev. Proc. 
2017-5, 2017-1 IRB 230, and in the instructions for Form 1023-EZ.
    Also on July 2, 2014, a notice of proposed rulemaking (REG-110948-
14) cross-referencing the temporary regulations and soliciting public 
comments and requests for a hearing was published in the Federal 
Register (79 FR 37697). No comments responding to the notice of 
proposed rulemaking were received, and no public hearing was requested 
or held. The IRS continues to consider improvements to Form 1023-EZ 
based on its own experience and informal comments received from the 
public and other stakeholders on the form, including whether to require 
applicants to submit a brief statement of actual or proposed 
activities. Because the proposed regulations contemplate that guidance 
published in the Internal Revenue Bulletin may prescribe the 
information required of Form 1023-EZ filers, including regarding their 
proposed activities, the Department of the Treasury (Treasury 
Department) and the IRS have concluded that the proposed regulations 
are sufficiently flexible to allow such a revision to the Form 1023-EZ 
at a future date, as resources permit. Accordingly, this Treasury 
decision adopts as final regulations, without substantive change, the 
proposed regulations set forth in the 2014 notice of proposed 
rulemaking and removes the corresponding temporary regulations.

Explanation of Provisions

    The Treasury Department and the IRS have considered how the process 
of meeting the notice requirement of section 508 in seeking recognition 
of tax-exempt status may be made more efficient for certain smaller 
organizations. The IRS developed Form 1023-EZ to provide a simplified 
application form that relies more heavily on attestations by the 
organization that it meets the section 501(c)(3) organizational and 
operational requirements, which are explained in the accompanying form 
instructions. The new form was made available for use by eligible small 
organizations in July 2014, following the issuance of the temporary 
regulations and a revenue procedure describing the streamlined 
application process. The streamlined application process generally 
allows eligible small organizations to receive IRS determinations of 
tax-exempt status more quickly and allows the IRS to focus resources on 
more complex exemption applications and on compliance programs. This 
Treasury decision adopts the 2014 proposed regulations by amending 
Sec. Sec.  1.501(a)-1, 1.501(c)(3)-1, and 1.508-1 to authorize the 
continued use of the IRS' streamlined process by eligible organizations 
to meet the notice requirements of section 508.
    Specifically, this Treasury decision amends Sec. Sec.  1.501(a)-1 
and 1.501(c)(3)-1, as in effect before July 2, 2014, to authorize the 
Treasury Department and the IRS to modify, by applicable regulations or 
other guidance published in the Internal Revenue Bulletin, the 
requirement that an organization applying for section 501(c)(3) tax-
exempt status provide a detailed statement of its proposed activities. 
This document also amends the Sec.  1.501(a)-1 provisions relating to 
the Commissioner's ability to revoke a determination because of a 
change in the law or regulations, or for other good cause, to reference 
the Commissioner's authority to retroactively revoke a determination 
under section 7805(b). No substantive change is intended by this 
amendment. This Treasury decision also amends the requirement in Sec.  
1.501(a)-1(b)(3) that an organization claiming to be exempted from 
filing annual returns file a statement supporting its claim with and as 
a part of its application. As amended, Sec.  1.501(a)-1(b)(3) allows an 
organization to file the statement either in its application, or in a 
manner prescribed in guidance published in the Internal Revenue 
Bulletin. See Rev. Proc. 2017-5 for rules for filing this statement on 
Form 8940, ``Request for Miscellaneous Determinations.''
    In addition, this document amends Sec.  1.508-1 to provide that 
eligible organizations may use Form 1023-EZ to notify the Commissioner 
of their applications for tax-exempt status under section 501(c)(3). 
This Treasury decision also amends Sec. Sec.  1.501(a)-1 and 1.508-1 to 
state that the office to which applications should be submitted will be 
published in the Internal Revenue Bulletin or instructions to the Form 
1023 or Form 1023-EZ.
    Finally, this Treasury decision incorporates minor revisions within 
the portions of Sec. Sec.  1.501(a)-1, 1.501(c)(3)-1, and 1.508-1 that 
are otherwise being amended. In Sec.  1.501(a)-1(a)(2), the reference 
to ``internal revenue district'' is removed because such reference has 
been made obsolete by the enactment of the Internal Revenue Service 
Restructuring and Reform Act of 1998, Public Law 105-206, 112 Stat. 
685. References to a district director in Sec. Sec.  1.501(a)-1, 
1.501(c)(3)-1, and 1.508-1 are also modified as appropriate, as those 
positions no longer exist within the IRS. Similarly, references to 
obsolete due dates for filing notices described in section 508 and 
related transition relief provisions that are no longer relevant have 
been removed from Sec. Sec.  1.508-1(a)(2)(i) and (b)(2)(iv). In 
addition, Sec.  1.508-1(b)(2)(v) has been revised to remove a reference 
to the instructions for Form 4653, which is no longer in use.

Effective/Applicability Dates

    The temporary regulations have applied since July 1, 2014, and this 
Treasury decision adopts the proposed regulations that cross-referenced 
the text of those temporary regulations without substantive change. 
Thus, the final regulations apply on and after July 1, 2014.

[[Page 29732]]

Statement of Availability of IRS Documents

    Rev. Proc. 2017-5 is published in the Internal Revenue Bulletin and 
is available from the Superintendent of Documents, U.S. Government 
Printing Office, Washington, DC 20402, or by visiting the IRS Web site 
at http://www.irs.gov.

Special Analyses

    Certain IRS regulations, including these, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory impact assessment is 
not required. It is hereby certified that this rule will not have a 
significant economic impact on a substantial number of small entities. 
Although this rule may affect a substantial number of eligible small 
entities that choose to use Form 1023-EZ to apply for recognition of 
tax-exempt status under section 501(c)(3), the Form 1023-EZ streamlines 
the application process, thereby reducing the economic impact on these 
entities. This rule merely permits use of the streamlined form of 
application available to satisfy the notice requirements under section 
508(a). Therefore, a Regulatory Flexibility Analysis under the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. 
Pursuant to section 7805(f), the temporary and proposed regulations 
preceding these final regulations were submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on their 
impact on small business and no comments were received.

Drafting Information

    The principal author of these regulations is Peter A. Holiat of the 
Office of Associate Chief Counsel (Tax Exempt and Government Entities). 
However, other personnel from the Treasury Department and the IRS 
participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 1.501(a)-1 is amended by revising paragraphs (a)(2), 
(b)(1), (b)(3), and (f) to read as follows:


Sec.  1.501(a)-1   Exemption from taxation.

    (a) * * *
    (2) An organization, other than an employees' trust described in 
section 401(a), is not exempt from tax merely because it is not 
organized and operated for profit. In order to establish its exemption, 
it is necessary that every such organization claiming exemption file an 
application form as set forth below with the appropriate office as 
designated by the Commissioner in guidance published in the Internal 
Revenue Bulletin, forms, or instructions to the applicable forms. 
Subject only to the Commissioner's inherent power to revoke rulings, 
including with retroactive effect as permitted under section 7805(b), 
because of a change in the law or regulations or for other good cause, 
an organization that has been determined by the Commissioner (or 
previously by a district director) to be exempt under section 501(a) or 
the corresponding provision of prior law may rely upon such 
determination so long as there are no substantial changes in the 
organization's character, purposes, or methods of operation. An 
organization that has been determined to be exempt under the provisions 
of the Internal Revenue Code of 1939 or prior law is not required to 
secure a new determination of exemption merely because of the enactment 
of the Internal Revenue Code of 1954 unless affected by substantive 
changes in law made by such Code.
* * * * *
    (b) Additional proof by particular classes of organizations--(1) 
Unless otherwise prescribed by applicable regulations or other guidance 
published in the Internal Revenue Bulletin, organizations mentioned 
below shall submit with and as a part of their applications the 
following information:
    (i) Mutual insurance companies shall submit copies of the policies 
or certificates of membership issued by them.
    (ii) In the case of title holding companies described in section 
501(c)(2), if the organization for which title is held has not been 
specifically notified in writing by the Internal Revenue Service that 
it is held to be exempt under section 501(a), the title holding company 
shall submit the information indicated herein as necessary for a 
determination of the status of the organization for which title is 
held.
    (iii) An organization described in section 501(c)(3) shall submit 
with, and as a part of, an application filed after July 26, 1959, a 
detailed statement of its proposed activities.
* * * * *
    (3) An organization claiming to be specifically exempted by section 
6033(a) from filing annual returns shall submit with and as a part of 
its application (or in such other manner as is prescribed in guidance 
published in the Internal Revenue Bulletin) a statement of all the 
facts on which it bases its claim.
* * * * *
    (f) Effective/applicability date. Paragraphs (a)(2), (b)(1), and 
(b)(3) of this section apply on and after July 1, 2014.


Section 1.501(a)-1T  [Removed].

0
Par. 3. Section 1.501(a)-1T is removed.

0
Par. 4. Section 1.501(c)(3)-1 is amended by revising paragraphs 
(b)(1)(v), (b)(6), and (h) to read as follows:


Sec.  1.501(c)(3)-1  Organizations organized and operated for 
religious, charitable, scientific, testing for public safety, literary, 
or educational purposes, or for the prevention of cruelty to children 
or animals.

* * * * *
    (b) * * *
    (1) * * *
    (v) Unless otherwise prescribed by applicable regulations or other 
guidance published in the Internal Revenue Bulletin, an organization 
must, in order to establish its exemption, submit a detailed statement 
of its proposed activities with and as a part of its application for 
exemption (see Sec.  1.501(a)-1(b)).
* * * * *
    (6) Applicability of the organizational test. A determination by 
the Commissioner that an organization is described in section 501(c)(3) 
and exempt under section 501(a) will not be granted after July 26, 
1959, regardless of when the application is filed, unless such 
organization meets the organizational test prescribed by this paragraph 
(b). If, before July 27, 1959, an organization has been determined by 
the Commissioner or district director to be exempt as an organization 
described in section 501(c)(3) or in a corresponding provision of prior 
law and such determination has not been revoked before such date, the 
fact that such organization does not meet the organizational test 
prescribed by this paragraph (b) shall not be a basis for revoking such 
determination. Accordingly, an organization that has been determined to 
be exempt before July 27, 1959, and which does not seek

[[Page 29733]]

a new determination of exemption is not required to amend its articles 
of organization to conform to the rules of this paragraph (b), but any 
organization that seeks a determination of exemption after July 26, 
1959, must have articles of organization that meet the rules of this 
paragraph (b). For the rules relating to whether an organization 
determined to be exempt before July 27, 1959, is organized exclusively 
for one or more exempt purposes, see 26 CFR (1939) 39.101(6)-1 
(Regulations 118) as made applicable to the Code by Treasury Decision 
6091, approved August 16, 1954 (19 FR 5167; 1954-2 CB 47).
* * * * *
    (h) Effective/applicability date. Paragraphs (b)(1)(v) and (b)(6) 
of this section apply on and after July 1, 2014.


Section 1.501(c)(3)-1T   [Removed].

0
Par. 5. Section 1.501(c)(3)-1T is removed.

0
Par. 6. Section 1.508-1 is amended by revising paragraphs (a)(2)(i), 
(a)(2)(ii), (b)(2)(iv), (b)(2)(v), and (c) to read as follows:


Sec.  1.508-1   Notices.

    (a) * * *
    (2) Filing of notice--(i) For purposes of paragraph (a)(1) of this 
section, except as provided in paragraph (a)(3) of this section, an 
organization seeking exemption under section 501(c)(3) must file the 
notice described in section 508(a) within 15 months from the end of the 
month in which the organization was organized. Such notice is filed by 
submitting a properly completed and executed Form 1023 (or, if 
applicable, Form 1023-EZ) exemption application. Notice should be filed 
with the appropriate office as designated by the Commissioner in 
guidance published in the Internal Revenue Bulletin, forms, or 
instructions to the applicable forms. A request for extension of time 
for the filing of such notice should be submitted to such appropriate 
office. Such request may be granted if it demonstrates that additional 
time is required.
    (ii) Although the information required by either Form 1023 or Form 
1023-EZ must be submitted to satisfy the notice required by this 
section, the failure to supply, within the required time, all of the 
information required to complete such form is not alone sufficient to 
deny exemption from the date of organization to the date such complete 
information for such form is submitted by the organization. If the 
information that is submitted within the required time is incomplete, 
and the organization supplies the necessary additional information 
requested by the Commissioner within the additional time period 
allowed, the original notice will be considered timely.
* * * * *
    (b) * * *
    (2) * * *
    (iv) Any organization filing notice under this paragraph (b)(2)(iv) 
shall file its notice by submitting a properly completed and executed 
Form 1023 (or, if applicable, Form 1023-EZ) and providing information 
that it is not a private foundation. The organization shall also submit 
all information required by the regulations under section 170 or 509 
(whichever is applicable) necessary to establish recognition of its 
classification as an organization described in section 509(a)(1), (2), 
(3), or (4). The notice required by this paragraph (b)(2)(iv) should be 
filed with the appropriate office as designated by the Commissioner in 
guidance published in the Internal Revenue Bulletin, forms, or 
instructions to the applicable forms.
    (v) An extension of time for the filing of a notice under this 
paragraph (b)(2) may be granted by the office with which the notice is 
filed upon timely request by the organization, if the organization 
demonstrates that additional time is required.
* * * * *
    (c) Effective/applicability date. Paragraphs (a)(2)(i), (a)(2)(ii), 
(b)(2)(iv), and (b)(2)(v) of this section apply on and after July 1, 
2014.


Section 1.508-1T   [Removed].

    Par. 7. Section 1.508-1T is removed.

Kirsten B. Wielobob,
Deputy Commissioner for Services and Enforcement.
    Approved: June 9, 2017.
Thomas West,
Tax Legislative Counsel.
[FR Doc. 2017-13866 Filed 6-29-17; 8:45 am]
 BILLING CODE 4830-01-P