SECTION 2. BACKGROUND

.01 Charitable Contributions Eligible for Deductions .

Contributions to or for the use of an organization described as eligible for charitable contributions in § 170(c), may be deductible, with certain limitations, by contributors for federal income tax purposes. It is the responsibility of an organization receiving contributions to ensure that its character, purposes, activities, and method of operation satisfy the qualification requirements of § 170(c) at the time of the contribution in order for grantors and contributors to have the assurance that their contributions will be deductible when made.

.02 Organizations That Cease to Qualify as Organizations Described in § 170(c) .

A determination letter or ruling on taxexempt status is based solely on the facts, attestations, and representations contained

in the administrative record, including the application for exemption (Form 1023 or Form 1023EZ), and any information submitted in support of the application. If there is a material change, inconsistent with exemption, in the character, purposes, or method of operation from those on which the determination letter or ruling was based, or if there was any omission or misstatement of material information, which includes incorrect representations or attestations as to the organization’s organizational documents, the organization’s exempt purpose, the organization’s conduct of prohibited and restricted activities, or the organization’s eligibility to file Form 1023–EZ, and the change, omission, or misstatement is such that the organization ceases, as a matter of law, to qualify as an organization described in § 170(c), the determination letter or ruling ceases to be applicable. In such circumstances, except as otherwise provided by the validation provision of § 7428(c) (see section 9 of this revenue procedure), it is only by the exercise of the authority under § 7805(b)(8) that grantors or contributors to the organization may be allowed a deduction for grants or contributions made after the organization ceases to qualify under § 170(c).

.03 Regulatory Provisions for Reliance .

Under § 1.170A–9(f)(5)(ii) of the regulations, a grantor or contributor may rely on the continued validity of a determination letter or ruling concluding that an entity is described in § 170(b)(1)(A)(vi) until the IRS makes a public announcement of the entity’s change in status. However, the grantor or contributor may not rely on a determination letter or ruling if the grantor or contributor was responsible for, or aware of, the act or failure to act that resulted in the loss of classification or knew that the loss was imminent.

Similarly, under § 1.509(a)–7, once an organization has received a determination letter or ruling classifying it as an organization described in § 509(a)(1), (2), or (3), the treatment of contributions and grants, and the status of grantors and contributors to such organization, will not be affected by a subsequent revocation by the IRS of the organization’s classification as a public charity until the date on which the IRS publicly announces the change of status,

June 4, 2018 740 Bulletin No. 2018–23

rely on the IRS’s identification of an organization’s tax-exempt and foundation status and to provide safe harbors with regard to the effect of grants and contributions on an organization’s foundation status.

(1) Rev. Proc. 81–6.

Rev. Proc. 81–6 provides a safe harbor to all grantors and contributors to determine if they were entitled to rely on the classification of an organization as a public charity, and would be deemed not to have knowledge of, be responsible for, or be aware of a substantial and material change in an organization’s source of support that gave rise to the revocation of a determination letter or ruling classifying the organization as a public charity.

(2) Rev. Proc. 81–7.

Rev. Proc. 81–7 provides a safe harbor to grantors and contributors as to the grants and contributions that will be considered unusual grants. Under §§ 1.170A– 9(f)(6)(ii) and 1.509(a)–3(c)(3), the receipt of an “unusual grant” will not result in a grantee organization losing its classification as a public charity and becoming a private foundation because an unusual grant is excluded from both the numerator and the denominator of the applicable support fraction for purposes of determining whether the organization is publicly supported under § 170(b)(1)(A)(vi) and § 509(a)(1) or under § 509(a)(2). Thus, a grantor or contributor who makes a grant or contribution that is an “unusual grant” to a publicly supported organization will not be responsible for an act that results in the organization’s loss of classification as a publicly supported organization and is entitled to rely on the organization’s classification as a publicly supported organization.

(3) Rev. Proc. 89–23.

Rev. Proc. 89–23 provides an additional safe harbor to private foundation grantors and contributors for determining if they were entitled to rely on the classification of an organization, and would be deemed not to have knowledge of, or be responsible for, or aware of, a substantial and material change in an organization’s

source of support that gave rise to the revocation of a determination letter or ruling classifying the organization as a public charity. This additional safe harbor was provided to private foundations because in general their reliance on the classification of an organization relates to their liability for excise taxes under §§ 4942 and 4945 if they make grants or contributions to other private foundations, rather than to the deductibility of contributions. More specifically, a private foundation may not be able to count a grant as a qualifying distribution under § 4942(g) if the grant causes the recipient organization to lose its classification as a public charity and become a private foundation. A private foundation may also be subject to an excise tax under § 4945(a) on taxable expenditures if it has not followed the expenditure responsibility requirements of § 4945(d)(4)(B) in regard to a grant that causes the recipient organization to lose its classification as a public charity and become a private foundation.

(4) Rev. Proc. 2011–33.

As an update to earlier revenue procedures, Rev. Proc. 2011–33 sets forth the extent to which grantors and contributors may rely on the listing of an organization in Publication 78, Cumulative List of Organizations Described in § 170(c), for purposes of deducting contributions under § 170 and making grants under §§ 4942, 4945, and 4966.

.06 Reliance Revenue Procedure Combined with Safe Harbor Revenue Procedures into One Revenue Procedure .

In order to simplify compliance for grantors and contributors, this revenue procedure combines the safe harbors of Rev. Procs. 81–6, 81–7, and 89–23 and the reliance revenue procedure of Rev. Proc. 2011–33, and replaces them with one revenue procedure on deductibility and reliance issues for grantors and contributors.