November 27, 2017
The Internal Revenue Service proposed Form 1024-A for applications filed by organizations wishing to obtain official determination letters attesting to their tax-exempt status under Internal Revenue Code § 501(c)(4). The IRS proposed this form in response to the legislative history of IRC § 506, created by the PATH Act of 2014, in which the Joint Committee on Taxation suggested that requests for such determination letters be made on a form that notified applicants that such requests were optional.
The IRS proposal, however, ignores most of the rest of the legislative history of IRC § 506, which indicates clearly that Congress found the IRS’s efforts on these applications “a complete waste of time.” The language of IRC § 506 came directly from H.R. 1295, The IRS Bureaucracy Reduction and Judicial Review Act (2014), which was passed unanimously by both the Ways & Means Committee and the entire House (there was no similar Senate provision). The legislative history of H.R. 1295 shows that Congress felt that the 10,000 hours spent by the IRS on processing these applications could have been better spent on other backlogged applications; that Congressional intent should be the guiding principle for Form 1024-A.
Fortunately, recent IRS efforts at analytics and increasing efficiency have shown that such applications can be handled in a much more efficient and less resource-intensive manner. One of the major steps in such improvements has been recognizing that the IRS can effectively deploy “self-declaration” procedures in applications while relying on background reviews of annual information returns, rather than spending so much time on “front-end” reviews of applications. These efforts have been most effectively concentrated on smaller organizations, which generally do not have experienced legal and tax counsel.
Unfortunately, proposed Form 1024-A does not reflect either Congressional intent or these modernization and efficiency techniques. Both the IRS’s approach and the form itself can be improved by:
- ceasing work on the proposed Form 1024-A until the IRS has deployed its analytic and efficiency efforts on information available from the annual Forms 990 (as Congress intended);
- expanding public education and transition efforts on compliance with IRC § 506; and
- providing a “self-declaring” Form 1024-A, similar to the Form 1023-EZ, rather than a “front-loaded” form that requires significant effort for both applicants and the Service.
To read the full 8-page set of comments, please see Comments on Form 1024-A.