IRS Revenue Procedure for 501(c)(3) Provides New Procedure for Organizations Seeking Different 501(c) Recognition

On January 2, 2024, the IRS released Revenue Procedure 2024-5 (Rev. Proc. 2024-5), which updates a prior revenue procedure that sets forth the procedures for issuing Exempt Organization (EO) determination letters.  Organizations that are already recognized as tax-exempt under 501(c)(3) may apply for recognition under other paragraphs of Section 501(c), such as a tax exempt social welfare organization under 501(c)(4).

Notably, Rev. Proc. 2024-5 provides that when a recognized 501(c)(3) organization applies for recognition under a different paragraph of Section 501(c), the IRS will now issue an EO determination letter to that organization if it establishes that as of the submission date of its application, it:

1. Has distributed its assets to another Section 501(c)(3) organization or government entity, and
2. Otherwise meets the requirements for the Section 501(c) status requested.

The currently recognized 501(c)(3) organization must also include the following in its supplemental responses to the applicable recognition application:

1. Represent that its assets have been distributed as of the submission date of its application and provide a description of the assets distributed, the date of distribution and the name, EIN, and address of the recipient and
2. Agree to submission (postmark) date for recognition under the new paragraph of Section 501(c)

Any new EO determination letter that may be issued will only be effective from the submission (postmark) date of the new recognition application under the new Section 501(c) paragraph.

Organizations that had their Section 501(c)(3) status automatically revoked under Section 6033(j) for failure to file required returns or notices and seek retroactive reinstatement under a different paragraph of Section 501(c), may also take advantage of this procedure.

Importantly, Section 501(c)(3) organizations seeking to be recognized as described in Section 501(c)(4) must file a Form 8976, Notice of Intent to Operate Under Section 501(c)(4), within 60 days of formation as new Section 501(c)(4) organizations.  Reasonable cause relief from any penalty for late filing of the Form 8976 may be available under certain circumstances.

This new procedure provides a more streamlined approach for 501(c)(3) organizations that want to be recognized under a different 501(c) paragraph, such as transitioning from a charitable organization to a social welfare one.

LCW attorneys are available to assist any 501(c)(3) organizations that are interested in being recognized as a 501(c)(4) or other 501(c) organization, or are interested in learning about the benefits of making this change.  For example, a benefit of being recognized under 501(c)(4) is the ability to further the organization’s exempt purpose through lobbying.