BLS Insights

IRS Determination – Why the wait?

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My son recently tried out for a traveling baseball team and after a week and a half of grueling tryouts he had to wait for their decision. With only a limited number of spots open for the upcoming season, combined with the fact that the team went undefeated in the prior year, he knew that his place on the team was anything but guaranteed. Day after day he would wait by the phone in anticipation and I will never forget the look on his face during that time. He had hopeful thoughts of traveling to different places to play against other talented players, the joy of receiving individual training and coaching and, of course, happy thoughts about telling the good news to his friends and family.

I often see this same look of anticipation while assisting organizations in preparing and filing their applications for tax-exempt status. And the same two questions are usually asked:

  1. How long before I receive an answer?
  2. What can I do while I wait?

For my son the answers were simple. The team had promised a decision within the next two weeks and in the meantime he was expected to continue training. For organizations seeking tax-exempt status, the answers, especially regarding the time it takes to receive a determination letter, require knowledge about the IRS’s process.

IRS Determination Letter

The process begins with the receipt of the exempt application in Covington, KY where the application is immediately entered into the IRS system and the user payment processed. After that, the application is forwarded to the IRS’s Exempt Organizations function in Cincinnati, OH. Upon receipt in Cincinnati, the application is screened by an IRS Determination Specialist who separates  applications into four categories:

  1. Those that can be approved immediately based upon the information submitted
  2. Those that need minor additional information to be resolved
  3. Those that are submitted on obsolete forms or do not include all required items
  4. Those that require substantial development.

If the application of the applying organization falls within one of the first three categories, they will receive either a determination letter or a request for additional information, via phone, fax, or letter, within approximately 90 days of the date the application was submitted.

If the application falls within the fourth category, the applying organization will be contacted once the application is assigned to a specialist for further development. Because these applications may experience some wait time before they are assigned, the IRS regularly publishes the receipt date for applications being assigned to said specialists. Currently, applications received by the IRS in March 2012 which fell into the fourth category are being assigned.

Here is a helpful flowchart detailing the entire IRS exempt organization determination process. The IRS also provides a list of the top ten reasons for delays in processing exempt organization applications . Avoiding these reasons can help an organization ensure they submit an application which falls into the first category.

While organizations waiting for exemption status may operate as they were designed, meaning they may operate as an exempt organization, the organization should also advise all donors that their donations to the organization during this pending stage may only be treated as tax deductible if the organization’s exemption request is granted by the IRS. Additionally, the organization should file a Form 990 and check the appropriate box on page 1 indicating tax-exempt status is pending. Forms 990 are due to the IRS 5 ½ months after an organization’s year end and are not excused simply because exemption status is pending.

Once exemption status is granted for your organization, it will be able to focus on new sights and goals just as my son did when he found out he had made the team!

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