IRS Announces New Procedure for 501(c)(3) Organizations Wishing to Change Their Exempt Status
The Internal Revenue Service (IRS) recently issued Revenue Procedure 2024-5, which addresses the process by which organizations with tax-exempt status under Section 501(c)(3) can seek recognition by the IRS under a different paragraph of Section 501(c).
The Internal Revenue Service (IRS) recently issued Revenue Procedure 2024-5, which addresses the process by which organizations with tax-exempt status under Section 501(c)(3) can seek recognition by the IRS under a different paragraph of Section 501(c). If you have questions about tax issues concerning your charitable organization or other related legal matters, contact the California Center for Nonprofit Law at (949) 892-1221 today for legal advice and guidance.
Procedure for Changing 501(c) Sections for Your Organization
Rev. Proc. 2024-5 Sec. 3.01(1) states that the IRS Exempt Organizations (EO) division will issue a determination letter to a Section 501(c)(3) organization seeking recognition by the IRS under a different paragraph of Section 501(c). For instance, a charitable organization could request recognition under Section 501(c)(4) as a social welfare organization, 501(c)(6) as a business league, or 501(c)(7) as a social club.
To make this conversion, the Section 501(c)(3) organization must establish that:
· It has distributed its assets to another Section 501(c)(3) organization or government entity; and
· It otherwise meets all other requirements for recognition under the other Section 501(c) paragraph sought.
The new determination letter will be effective only from the date the organization submits its new application for recognition to the IRS. The application date is the postmark date of the application.
The organization’s application for recognition must contain an acknowledgment that all assets have been distributed as required by the date of its application, as well as a description of all assets distributed, the date of distribution, and the name, EIN, and address of the recipient. Organizations can provide this representation in their supplemental responses submitted with Form 1024 or Form 1024-A.
Expanded Use of this Procedure
In Rev. Proc. 2024-5, the IRS expands the use of this procedure to another situation. More specifically, a Section 501(c)(3) organization automatically revoked under Section 6033(j) seeking retroactive reinstatement described in a different paragraph of 501(c) should follow the same procedure. This type of automatic revocation occurs when a Section 501(c)(3) organization fails to file annual returns for three consecutive years.
Organizations Converting from Section 501(c)(3) to 501(c)(4)
Furthermore, like newly formed Section 501(c)(4) organizations, organizations wishing to convert from Section 501(c)(3) to 501(c)(4) must file Form 8976 within 60 days of formation. However, an organization converting from Section 501(c)(3) to 501(c)(4) may have reasonable cause for not filing Form 8976 within the required 60-day period. Those organizations may request reasonable cause relief from the IRS from any late filing penalty by following the IRS notice of penalty instructions.
Call the California Center for Nonprofit Law Today
If you need legal advice or assistance, we are here to help. Contact an experienced nonprofit lawyer today. Call the California Center for Nonprofit Law offices at (949) 892-1221, email us at info@npolawyers.com, or contact us online for more information today. We offer a wealth of experience handling the unique legal issues that nonprofit organizations routinely face.