PLR 201933018 IRS Reclassifies 509(a)(2) Organization as 509(a)(1) Public Charity
Dear * * *:
Why you're receiving this letter
We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to modify your organization's foundation status under Internal Revenue Code (IRC) Section 509(a).
Your exempt status under IRC Section 501(c)(3) is still in effect.
If you agree
If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final letter modifying your foundation status.
If you disagree
- Request a meeting or telephone conference with the manager shown at the top of this letter.
- Send any information you want us to consider.
- File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information.
The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.
Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter.
4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS.
If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals.
If we don't hear from you
If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final letter modifying your foundation status.
Contacting the Taxpayer Advocate Office is a taxpayer right
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.
You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676).
If you have questions, you can contact the person shown at the top of this letter.
Director, Exempt Organizations Examinations
Form 886-A EXPLANATION OF ITEMS
Name of Taxpayer
Tax Year 20XX
Whether * * * should be reclassified from section 509(a)(2) to sections 509(a)(1) & 170(b)(1)(A)(vi) of the Internal Revenue Code.
Initially, when * * * was formed they were supported primarily by fees and they were granted exemption under classification 509(a)(2). Over the years the organization's support has changed from fees to gifts, grants and contributions. The financial information reported on your Form 990, Schedule A indicates that you are primarily supported by gifts, grants, and contributions. It was determined that the public support percentage under 509(a)(1) & 170(b)(1)(A)(vi) was approximately 80 percent.
The financial information indicates that * * * qualifies under either 509(a)(2) or 509(a)(1) & 170(b)(1)(A)(vi). * * * requested that their foundation status be changed from 509(a)(2) to 509(a)(1) & 170(b)(1)(A)(vi).
Section 509(a)(2) of the Code describes an organization that receives no more than one-third of its support from gross investment income and more than one-third of its support in each tax year from a combination of the following:
i) gifts, grants, contributions, or membership fees from other than a disqualified person, and
ii) gross receipts from admissions, sales of merchandise, performance of services or furnishing of facilities in an activity that is not an unrelated business (to the extent that gross receipts from any one individual does not exceed the greater of $5,000 or one percent of the organization's total support on that tax year.
Section 170(b)(1)(A)(vi) of the Code describes an organization "which normally receives a substantial part of its support from a governmental unit . . . or from direct or indirect contributions from the general public."
Income Tax Regulations section 1.170A-9(e)(2) states that an organization is publicly supported if at least 33 1/3 percent of its support is received from grants from governmental units, and direct or indirect support from the general public.
Income Tax Regulations section 1.170A-9(e)(6) states, in part, that in order to meet the 1/3 support test, contributions from individuals, corporations, or trust are includible in the public support only to the extent that they do not exceed 2 percent of the organization's total support.
The taxpayer agrees with the foundation status change from 509(a)(2) to 509(a)(1) & 170(b)(1)(A)(vi).
Based on your financial information, we have determined that you are not a private foundation within the meaning of section 501(c)(3) of the Internal Revenue Code, because you are an organization of the type described in sections 509(a)(1) and 170(b)(1)(A)(vi) of the Code. Therefore, we propose to modify your foundation status from an organization described in section 509(a)(2) of the Code to that of an organization described in section 509(a)(1) and 170(b)(1)(A)(vi) of the Code effective January 1, 20XX.
* * * foundation status should be changed from 509(a)(2) to sections 509(a)(1) and 170(b)(1)(A)(vi) of the Code since they are primarily supported by gifts, grants, and contributions.
Your exemption under section 501(c)(3) of the Internal Revenue Code remains in effect.