In an update on its website, the IRS has announced that, effective March 7, 2016, it will begin returning applications for recognition of exemption under Section 501(c)(3) that are not made on the current version of Form 1023 (dated December 2013).

The requirement to submit applications using the current form was included in Revenue Procedure 2016-5, an annually updated revenue procedure that sets forth procedures for issuing determination letters on organizations' tax-exempt status.

The IRS had previously announced that, effective November 18, 2015, it would return any "substantially incomplete" determination letter request (Form 1023, Form 1024, Form 1028, Form 8940 or other letter request) with the user fee and a letter of explanation.

In addition to the requirement to file applications on the current form, Revenue Procedure 2016-5 also requires a substantially complete application to include:

— The correct user fee
— A signature by an authorized individual
— An employer identification number
— A statement of receipts and expenses
— A copy of the organization's organizing document that meets the requirements of a conformed copy
— A detailed narrative of the organization's proposed activities
— A copy of the organization's bylaws or similar governing rules, if adopted

Implications

When the application package is returned, IRS records will not reflect a pending application for a determination letter. Rather, if the IRS returns an application package, the organization seeking exemption must resubmit the application package in its entirety, along with any missing information and the correct user fees. This will likely cause delays in the time that it takes for the IRS to process the exemption request. Further, by having to resubmit the application package, an organization submitting the wrong version of Form 1023 or an insubstantially complete application might end up missing the 27-month filing deadline required for exemption to be effective as of the date the organization was formed. Instead, assuming the IRS approves the correctly submitted application, the organization's tax-exempt status would be effective only as of the submission date of the correct application. Organizations applying for tax-exempt status should be sure to make their request on the most current version of Form 1023 and submit a substantially complete application to avoid delays in processing and potential problems with the effective date of exemption.

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RELATED RESOURCES

— For more information about EY's Exempt Organization Tax Services group, visit us at www.ey.com/ExemptOrg

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