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Churches Should Note IRS Private Letter Ruling Policy

Changes usually spur request for letter seeking exemption confirmation.

Tax-exempt organizations, including churches, that have a determination letter from the Internal Revenue Service are required to notify the IRS of material changes in their activities or purpose, or of any changes to their governing documents (such as articles of incorporation or bylaws). For organizations that file Form 990, such changes are required to be reported to the IRS along with the Form 990. For organizations that do not file Form 990 (such as churches and certain other church-affiliated organizations), such changes must be reported to the IRS by letter.

In a recently issued information letter, the IRS affirmed that it no longer provides responses to organizations regarding the reported changes in their activities or governing documents, regardless of whether the changes are reported in Form 990 or by letter to the IRS. Accordingly, a church whose activities or governance has changed significantly has no assurance from the IRS that such changes do not adversely affect its exempt status.

Under current law and practice, the mechanism by which the IRS will respond to an organization's request for affirmation that a change in activities or governance does not adversely affect its exempt status is a Private Letter Ruling (PLR). A request for a PLR must follow specific and strict technical guidelines for submission. Additionally, the IRS generally charges a fee of $10,000 to process a PLR request. Given the fact that a PLR request must generally be prepared by a CPA or attorney with extensive tax knowledge in the arena of exempt organizations, the total cost of obtaining a PLR may be significant. For larger organizations or organizations for which the risk of noncompliance could be great, the cost may be justified in order to obtain the assurance of affirmation by the IRS. A PLR is generally binding on the IRS and the filing organization with respect to the matters covered, although the IRS can revoke a PLR prospectively.

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