On May 16, 2018, the IRS released Revenue Procedure 2018-32, which combines and updates previous guidance to assist grantors and contributors to exempt organizations.
When grants or contributions are made to exempt organizations, grantors or contributors rely on the exempt status and public charity classification of the grantee to determine the tax consequences (such as deductibility) of their gift. Existing IRS guidance for grantors and contributors about their reliance on the exempt status or public charity classification of a grantee is scattered and old. Revenue Procedure 2018-32 modifies and supersedes prior guidance and serves as a single handy resource for grantors and contributors.
IRS Publicly Available Lists and Databases
The IRS maintains two publicly available lists and databases that provide information on exempt organizations.
The rel="noopener noreferrer" first list is Tax Exempt Organization Search (previously, IRS Select Check), which may be used to:
- Locate organizations eligible to receive tax-deductible charitable contributions
- Determine whether an organization has had its exempt status revoked for failure to file annual information returns for three consecutive years
- Find information reported on Form 990-N, “Electronic Notice (e-Postcard),” filed by small tax-exempt organizations
The list provides a deductibility code that helps users determine the appropriate percentage limitations on the deductibility of charitable contributions and assists private foundations and sponsoring organizations of donor-advised funds in determining whether they may be required to exercise expenditure responsibility.
The Tax Exempt Organization Search includes two new features: images of Forms 990 filed on or after Jan. 1, 2018, and images of favorable IRS determination letters issued on or after Jan. 1, 2014. Users are able to search interactively across rel="noopener noreferrer" all databases.
The second list is the Exempt Organization Business Master File (EO BMF) Extract. This database is more comprehensive than the Tax Exempt Organization Search list and includes information on most exempt organizations rather than just organizations eligible to receive tax-deductible contributions. This list provides the organization’s employer identification number; address; Section 501(c) designation; ruling date; affiliation code (status as an independent, central, or subordinate organization); deductibility code; and foundation code (indicating whether an organization is a private foundation, private operating foundation, or public charity and, if applicable, the type of public charity or supporting organization). Users of the EO BMF Extract must download and search spreadsheet files and refer to an EO BMF information sheet for interpretation of the various codes.
Reliance on IRS Lists and Databases
Until a public announcement is made stating otherwise, users generally may rely on the information provided in the Tax Exempt Organization Search or the EO BMF Extract to determine if contributions to an organization are deductible or if an organization has a specific public charity classification. If an entity’s tax-exempt status is automatically revoked, grants and contributions made to the organization by persons unaware of the revocation generally will be considered deductible if the grant or contribution was made on or before the date the entity’s name is posted on the IRS Auto-Revocation List. The reliance rules will not benefit grantors or contributors that had knowledge of a revocation of the determination letter or ruling prior to the public announcement or posting, or that were aware that the revocation was imminent, or were in part responsible for or aware of circumstances that gave rise to the loss of qualification. Reliance on the database to determine whether an entity is eligible to receive deductible contributions or possesses a certain public charity classification is not a substitute for the charitable substantiation, expenditure responsibility, or other applicable rules.
Safe harbor rules protect certain grantors and contributors from being considered responsible for or aware of circumstances that result in loss of classification as a public charity due to a change in financial support. These rules benefit grantors or contributors if their aggregate grants or contributions to an organization constitute 25 percent or less of the organization’s aggregate support over a four-year period as long as they were not in a position of authority with respect to the recipient organization. Additionally, the rules protect private foundation grantors or contributors that rely on an organization’s public charity classification as long as they do not control the recipient organization. The rules do not protect those who had actual knowledge of the loss of public charity status, nor are grantors or contributors protected after the date of any public announcement that an organization ceases to qualify as a public charity.
The revenue procedure contains additional information on unusual grants, reliance on EO BMF Extract information obtained from a third party, and the treatment of contributions during proceedings regarding the continued qualification of an exempt organization. The exempt organization community likely will appreciate this updated one-stop reference.