NOTE: New regulations change the requirements for rulings and determinations that organizations are publicly supported. See Elimination of the Advance Ruling Process for the latest information, including changes to filing requirements for organizations that have received advance rulings of their status as publicly supported organizations.
Many new organizations cannot show that they qualify as normally publicly supported as described in sections 509(a)(1) and 170(b)(1)(A)(vi) of the Internal Revenue Code because they have not been in existence long enough. However, a new organization may qualify for an advance ruling that it will be treated as a publicly supported organization, during an advance ruling period long enough to enable it to develop an adequate support history on which to base an initial determination as to foundation status. At the end of the advance ruling period, the organization must show that it actually met the public support test during the years within the advance ruling period. Otherwise, the organization will be reclassified as a private foundation.
Generally, the type of organization that would qualify for an advance ruling is one that can show that its organizational structure, proposed programs and activities, and intended method of operation are likely to attract the type of broadly based support from the general public, public charities, and governmental units that is necessary to meet the public support requirements.
Five-Year Advance Ruling Period
A new organization may request an advance ruling that it will be treated as a publicly supported organization for its first five tax years. The request must be accompanied by a consent to extend the statute of limitations on assessment which, in effect, states the organization will be subject to the tax on net investment income if it fails to qualify as an organization excluded as a private foundation during the five-year advance ruling period. The organization's first tax year, regardless of length, will count as the first year in the five-year period. The advance ruling period will end on the last day of the organization's fifth tax year.
Between 30 and 45 days before the end of the advance ruling period, the IRS will contact the organization and request the financial support information necessary to make a final determination of foundation status. This information may be submitted on Form 8734, Support Schedule for Advance Ruling Period.
The new organization will be treated as a publicly-supported organization for most purposes for the period beginning with its inception and ending 90 days after its advance ruling period expires. The period will be extended until a final determination is made of an organization's status only if the organization submits, within the 90-day period, information needed to determine whether it meets either of the support tests for its advance ruling period. However, this reliance period does not apply to the excise tax imposed on net investment income. If it is later determined that the organization was a private foundation from its inception, that excise tax will be due without regard to the advance ruling or determination letter. Consequently, if any amount of the tax is not paid on or before the last date prescribed for payment, the organization is liable for interest on the tax due for years in the advance-ruling period. However, since any failure to pay the tax during the period is likely due to reasonable cause, the penalty imposed for failure to pay the tax will not apply. See Reasonable Cause for Failure to File or Pay Tax for more information.
If an advance ruling or determination letter is terminated by the IRS before the expiration of the reliance period, the status of grants or contributions with respect to grantors or contributors to the organization will not be affected until notice of change of status of the organization is made to the public, as by publishing in the Internal Revenue Bulletin. However, this will not apply if the grantor or contributor was responsible for, or aware of, the act or failure to act that resulted in the organization's loss of classification as a publicly supported organization. Also, it will not apply if the grantor or contributor knew that the IRS had given notice to the organization that it would be deleted from this classification. Before any grant or contribution is made, a potential grantee organization may request a ruling on whether the grant or contribution may be made without loss of classification as a publicly supported organization. The ruling request may be filed by the grantee organization with the EO area manager. The issuance of the ruling will be at the sole discretion of the IRS. The organization must submit all information necessary to make a determination on the support factors previously discussed. If a favorable ruling is issued, the ruling may be relied upon by the grantor or contributor of the particular contribution in question. The grantee organization also may rely on the ruling for excluding unusual grants.
If the organization applies for an advance ruling as a publicly supported organization, we will rule favorably on its request if the facts and circumstances show that it can reasonably be expected to be publicly supported during the advance ruling period. At the end of the advance ruling period, the organization must file Form 8734, Support Schedule For Advance Ruling Period, demonstrating that it is a publicly supported organization. We will then issue a final ruling on the organization's status as a publicly supported organization.
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