IRS Eliminates the Advanced Ruling Period for Public Charities

On September 9, 2008, the IRS issued temporary Income Tax Regulations eliminating the advance ruling period for charities and eliminating the requirement to file IRS Form 8734 after the first five years of operation. Under the new regulations, a new organization applying for tax exempt status under Section 501(c)(3) will be classified as a publicly supported charity if it can show at the time of application that it can reasonably expect to be supported by the public and not operating as a private foundation. Private foundations are subject to possible excise taxes and increased scrutiny.

In the past charities applying for tax exempt status were presumed to be private foundations unless they represented on the Form 1023 application for tax exempt status that their funding would primarily be from public sources. They would then receive an advanced ruling for their first five tax years, following which they were required to submit Form 8734 to the IRS to document their sources of funding and to justify retention of the public charity ruling. The new procedure replaces the old 2-step, five-year process and instead grants immediate public charity status if the organization can show on its application that it can reasonably expect to receive funding primarily from public sources. The charity keeps that status for five years, regardless of funding sources. Following the five year period, the IRS will review responses to questions on the revised Form 990 to screen for those organizations that must be reclassified as private foundations.

Pension Protection Act of 2006

This Act changed a number of regulations affecting charities, including:

• Requiring annual reports from ALL charities, even those with less than $25,000 in annual gross receipts;
• Imposing new restrictions on donor advised funds;
• Imposing new requirements on supporting organizations and the charities that control them;
• Requiring public disclosure of Form 990-T that reports on unrelated business income;
• And more.

Learn more about this Act on the IRS website. There are links on the website to interim guidance for some of the new requirements.

Revision of Form 990 & Schedules

As of 2009 (reports for the 2008 tax year), the IRS will be phasing in a new Form 990, along with many new or revised schedules. Some of these changes will require new record keeping for charities. To read more about these changes, go to the IRS website.

New IRS Reporting for Small Charities