rp-11-33.pdf

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Revenue Procedure 2011-33

SECTION 1. PURPOSE

This revenue procedure modifies and supersedes Revenue Procedure 82-39,
1982-2 C.B. 759, and Revenue Procedure 2009-32, 2009-28 I.R.B. 142, and
provides the extent to which grantors and contributors (including donors) may
rely on the listing of an organization in Publication 78, Cumulative List of
Organizations described in § 170(c) of the Internal Revenue Code, or on the IRS
Business Master File (“BMF”) extract, for purposes of deducting contributions
under § 170 and making grants under §§ 4942, 4945, and 4966. In addition, this
revenue procedure clarifies that the Internal Revenue Service (“IRS”) may give
notice of revocation, including revocations under §6033(j), through an
appropriate public announcement, such as publication in the Internal Revenue
Bulletin or on the IRS’s website at www.irs.gov.

SECTION 2. BACKGROUND

.01 Section 170, with certain limitations, allows deductions for federal income tax
purposes of contributions or gifts made to or for the use of an organization that
qualifies as an organization described in § 170(c). In order for contributions to be
deductible, the organization must qualify at the time of the contribution. Thus, it
is the responsibility of an organization receiving contributions to ensure that its
character, purposes, activities, and method of operation satisfy the qualification
requirements of § 170(c) in order for grantors and contributors to have the
assurance that their contributions at the time made are deductible.

.02 Treas. Reg. § 1.509(a)-7(a) sets forth general rules regarding reliance by
grantors and contributors to organizations described in §§ 509(a)(1), (2), and (3).
This regulation provides that once an organization has received a ruling or
determination letter classifying it as an organization described in § 509(a)(1), (2),
or (3), the treatment of contributions and grants, and the status of grantors and
contributors to such organization under §§ 170, 507, 545(b)(2), 642(c), 4942,
4945, 2055, 2106(a)(2), and 2522, will not be affected by reason of a subsequent
revocation by the IRS of the organization’s classification as described in §
509(a)(1), (2), or (3) until the date on which notice of change of status is made to
the public.

.03 Generally, Publication 78 lists organizations that have received a ruling or
determination letter from the IRS stating that contributions by grantors or
contributors to the listed organization (or to the listed central (or parent)
organization and those local (or subordinate) units covered by the group
exemption letter) are deductible as provided in § 170. (Note that Publication 78
does not include separate listings for local organizations included in a group
ruling.) Each ruling or determination letter is based on a factual showing by the
listed organization that its character, purposes, activities, and method of

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operation satisfy the statutory requirements for qualification at the time the ruling
or determination letter is issued. If there is a material change in the character,
purposes, activities, or method of operation of an organization from those on
which the ruling or determination letter was based and the change is such that
the organization ceases, as a matter of law, to qualify under § 170(c), the ruling
or determination letter also immediately ceases to be applicable (see also Sec.
11.02 of Rev. Proc. 2011-9, 2011-2 I.R.B. 283). Where this circumstance occurs,
except for the validation provision of § 7428(c) (see Sec. 5.02), it is only by
exercise of the authority under § 7805(b) that grantors or contributors to the
organization may be allowed a deduction for grants or contributions made after
the organization ceases to qualify under § 170(c).

.04 Through the use of a “deductibility code,” Publication 78 generally indicates
the foundation classification under § 509(a) of the listed organizations. This
classification determines the appropriate limitations for deductibility purposes and
whether private foundations and sponsoring organizations of donor-advised
funds making grants to particular organizations would be required to exercise
expenditure responsibility. The coding system in Publication 78 does not indicate
specifically whether an organization is described in § 509(a)(1), (2), or (3), or a
particular subparagraph of § 170(b)(1)(A).

.05 The IRS no longer publishes a paper version of Publication 78. Grantors and
contributors can no longer rely on the paper version of Publication 78 or any
paper supplements for current information after the date of publication of this
revenue procedure. Publication 78 now appears solely in electronic format on
the IRS website at http://www.irs.gov/app/pub-78. Electronic Publication 78 and
its electronic addenda are generally updated at least quarterly.

.06 The IRS also makes an extract of certain information on exempt
organizations from the BMF available to the public through the Tax Statistics
section of the IRS website. The extract of the BMF contains more information, in
a slightly different format, than Publication 78. Among the data fields provided
are an organization’s name and Employer Identification Number (“EIN”), address,
subsection code (the paragraph under § 501(c) under which it is recognized as
exempt), ruling date, affiliation code (status as an independent, central, or local
organization), deductibility code, foundation code (indicating whether an
organization is a private foundation, private operating foundation, or public
charity described in § 509(a)(1), (2), or (3)), and, if applicable, the appropriate
subparagraph of § 170(b)(1)(A)), and other data fields. The IRS plans to modify
the foundation codes in early 2011 to indicate whether a § 509(a)(3) organization
is a Type I, Type II, Type III, or Type III functionally integrated supporting
organization. Unlike Publication 78, the BMF extract contains information on all
organizations that have been recognized by the IRS as tax-exempt, including
organizations not eligible to receive tax deductible contributions. References to
listing in or reliance on the BMF extract in this revenue procedure only pertain to
organizations contributions to which have been determined to be deductible

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under §170, as reflected in the deductibility code in Publication 78 or the BMF
extract.

.07 Due to its large size, the BMF extract is available as compressed ASCII Text
or Excel spreadsheet files. These files must be downloaded and uncompressed
before viewing. The BMF extract and its corresponding instructions are available
for download directly from the IRS website at
http://www.irs.gov/taxstats/charitablestats/article/0,,id=97186,00.html
. Generally,
the BMF information is extracted and updated on a monthly basis.

.08 Temporary Regulations §§ 1.170A-9T(f)(5)(ii) and 1.509(a)-3T(e)(2), 73 Fed.
Reg. 52,528 (Sept. 9, 2008), state generally that grantors and contributors may
rely on an organization’s ruling that the organization is described in §§
170(b)(1)(A)(vi) and 509(a)(1) or in § 509(a)(2) until the IRS publishes notice of
a change of status (for example, in the Internal Revenue Bulletin or Publication
78), unless the grantor or contributor was responsible for, or aware of, the act or
failure to act that results in the organization’s loss of public charity status.

.09 Section 6033(j) was added to the Internal Revenue Code as part of the
Pension Protection Act of 2006, and is effective for returns and notices for tax
years beginning after December 31, 2006. Section 6033(j) provides that an
organization exempt from tax under § 501(a) that fails to file an annual return or
submit an electronic notice for 3 consecutive years will lose its Federal tax
exempt status. Section 6033(j) further provides that the IRS shall publish and
maintain a list of any organization that is so revoked.

SECTION 3. RELIANCE ON PUBLICATION 78 AND THE BMF

.01 Revocations. Where an organization listed in or covered by Publication 78
or the BMF extract ceases to qualify as an organization contributions to which
are deductible under § 170:

(1) and the IRS subsequently revokes a ruling or a determination letter
previously issued to such organization, grants and contributions made to
the organization by persons unaware of such change in status of the
organization generally will be considered allowable if made on or before
the date of an appropriate public announcement stating that the
organization ceases to qualify as an organization contributions to which
are deductible under § 170.

(2) as a result of loss of exempt status pursuant to § 6033(j), grants and
contributions made to the organization by persons unaware of the change
in the status of the organization generally will be considered allowable if
made on or before the date of publication of the list of revoked
organizations required by § 6033(j).

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Publication in either case may be effected in the Internal Revenue Bulletin or on
the IRS’s website at http://www.irs.gov
or by such other means designed to put
the public on notice of the change in the organization’s status.

Under certain circumstances, such as where a legally enforceable obligation
under local law has been made to the organization prior to the date of
publication, and the satisfaction of such obligation is on or after the date, the
allowance period may be extended upon specific exercise of authority under §
7805(b). See, for example, Rev. Rul. 78-129, 1978-1 C.B. 67. However, the IRS
is not precluded from disallowing a deduction for any contribution made after an
organization ceases to qualify under § 170, where grantor or contributor (1) had
knowledge of the revocation of the ruling or determination letter prior to
publication of the revocation, (2) was aware that such revocation was imminent,
or (3) was in part responsible for, or was aware of, the activities or deficiencies
on the part of the organization that gave rise to the loss of qualification.

.02 Foundation status. With regard to an organization’s public charity status
under § 509(a)(1), (2), or (3), grantors and contributors may rely on the
classification of an organization listed in or covered by Publication 78 or the BMF
extract for such purpose to the same extent as provided for § 170 purposes in
paragraph .01 above. To the extent included in Publication 78 or the BMF
extract, this includes whether a § 509(a)(3) organization is a Type I, Type II, Type
III, or Type III functionally integrated supporting organization. Private foundations
and sponsoring organizations of donor-advised funds may rely on an
organization’s foundation status (or supporting organization type) set forth in
Publication 78 or the BMF extract for grant making purposes under §§ 4942,
4945, and 4966, except where the grantor (1) had knowledge of the revocation of
the ruling or determination letter classifying the organization as one described in
§ 509(a)(1), (2), or (3) (or specifying its supporting organization type) prior to the
publication of the revocation; or (2) was in part responsible for, or was aware of,
the act or the failure to act that gave rise to the revocation of the ruling or
determination letter classifying the organization as one described in § 509(a)(1),
(2), or (3) (or specifying its supporting organization type).

.03 The advance assurance of deductibility and foundation status provided by
paragraphs .01 and .02 above, respectively, applies only to grants or
contributions made to an organization listed in or covered by Publication 78 or
the BMF extract in the organization’s official name, its recognized popular name,
or a contraction of either of these names that is reasonably identifiable or widely
known. The advance assurance of deductibility and foundation status provided
by paragraphs .01 and .02 does not apply to contributions or grants made
nominally to an organization listed in or covered by Publication 78 or the BMF
extract but with the understanding or on a condition that they be made available
to or for the use of an organization not listed in or covered by Publication 78 or
the BMF extract.

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.04 The provisions of paragraphs .01 and .02 above do not apply to an
organization that is not listed in or covered by Publication 78 or the BMF extract.
In such a case the effect of a ruling or determination letter concerning the
deductibility of contributions to the organization or its foundation status is
determined in the manner described in Rev. Proc. 2011-4, 2011-1 I.R.B. 123.

.05 The advance assurance of deductibility and foundation status provided by
paragraphs .01 and .02 above do not apply to local organizations included in a
group ruling regardless of whether the local organization appears in the BMF
extract. For further reliance information, follow the procedures listed in
Publication 4573, Group Exemptions, and contact the tax-exempt central
organization.

SECTION 4. RELIANCE ON BMF INFORMATION FROM OTHER SOURCES

A grantor or contributor may rely on information about an organization from the
BMF extract that is obtained from a third party, so long as the following
requirements are met:

(1) The third party provides a report to the grantor or contributor that
includes: (A) the organization’s name, EIN, foundation status under §
509(a)(1), (2), or (3) (including supporting organization type, if
applicable), and whether contributions to such organization are
deductible ; (B) a statement that the information is from the most
current update of the BMF extract and the BMF extract revision date;
and (C) the date and time the information was provided to the grantor
or contributor; and

(2) The grantor or contributor retains a copy of the report in hard copy or
electronically.

SECTION 5. RELATIONSHIP WITH § 7428

.01 Section 7428 creates a remedy under declaratory judgment procedures, in
part, for cases involving a determination by the IRS with respect to the continuing
qualification of an organization as one described in § 170(c)(2) or § 501(c)(3), or
to the continuing classification of an organization under § 509(a). The remedy is
available in these cases if the IRS determines that revocation of exemption under
§ 501(c)(3), deductibility status under §170(c)(2), or foundation status under §
509(a) is appropriate, the organization has exhausted its administrative
remedies, and the IRS has issued a final adverse determination letter to the
organization. Under § 7428(b)(4), no action may be brought under § 7428 with
respect to any revocation of status described in § 6033(j)(1).

.02 However, § 7428(c) provides for the “validation of certain contributions”
made during the pendency of a proceeding for declaratory judgment involving the

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revocation of a determination that the organization is described in § 170(c)(2).
Under this provision, the organization continues to be treated as an eligible
organization described in § 170(c)(2) with respect to contributions from
individuals (up to a maximum of $1,000 in the aggregate during the pendency of
the proceeding) and from other charitable organizations described in § 170(c)(2).
Statutory protection for such contributions, if declaratory judgment is sought on
the revocation action, would begin on the date of publication of the revocation
and end on the date on which a decision in the Tax Court becomes final or a
judgment of the District Court of the United States for the District of Columbia or
the Court of Federal Claims is entered that the organization is not described in §
170(c)(2). This reliance, however, is not extended to any individual who was
responsible, in whole or in part, for the activities (or failures to act) on the part of
the organization that were the basis for the revocation.

SECTION 6. ERRORS OR OMISSIONS

Any errors or omissions in Publication 78 or the BMF extract should be reported
by the tax-exempt organization to the toll-free IRS customer service line at 1-877-
829-5500.

SECTION 7. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 82-39, 1982-1 C.B. 759, is modified and superseded. Rev. Proc.
2009-32, 2009-28 I.R.B. 142 is modified and superseded.

SECTION 8. EFFECTIVE DATE

This revenue procedure is effective immediately upon publication in the Internal
Revenue Bulletin.

SECTION 9. DRAFTING INFORMATION

The principal author of this Revenue Procedure is Melinda Williams of the
Exempt Organizations, Tax Exempt and Government Entities Division. For
further information regarding this notice, contact Ms. Williams at 202-283-9467
(not a toll-free call).