Exempt Organizations — Declaratory Judgments (Portfolio 460)

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Tax Management Portfolio, Exempt Organizations — Declaratory Judgments, No. 460, analyzes declaratory judgment actions involving exempt organizations filed under §7428 of the Internal Revenue Code.

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Tax Management Portfolio, Exempt Organizations — Declaratory Judgments, No. 460, analyzes declaratory judgment actions involving exempt organizations filed under §7428 of the Internal Revenue Code. Both jurisdictional and procedural aspects of declaratory judgment litigation are discussed in detail, with emphasis being placed on the legislative history of §7428, the Internal Revenue Service's administrative ruling process, and the case law. The portfolio also contains a complete set of worksheets, including pertinent portions of the legislative history of §7428, pertinent court rules, and relevant provisions of the Internal Revenue Manual.
An organization whose application for recognition of exempt status under §501(c) has been denied, or not acted on within 270 days, may file an action in the U.S. Tax Court, the U.S. Court of Federal Claims, or the U.S. District Court for the District of Columbia for a declaratory judgment that it is entitled to recognition of exempt status. Before doing so, however, it is required that the organization exhaust its administrative remedies with the IRS. The portfolio discusses how an organization can ascertain whether it has exhausted its administrative remedies and focuses on the issues concerning the choice of judicial forum. Also explained are the declaratory judgment remedies available to an organization whose exemption has been revoked by the IRS and the status of contributions made to such an organization during a declaratory judgment action. In both situations, the portfolio reviews in detail the procedural aspects of filing and prosecuting a declaratory judgment case.
This portfolio may be cited as Winslow, 460 T.M., Exempt Organization — Declaratory Judgments.


Peter H. Winslow, Esq.

Peter H. Winslow, B.A., Tufts University (1972); J.D., Case Western Reserve University (1975); LL.M., Georgetown University (1978); member, District of Columbia and Ohio bars.

Table of Contents

Detailed Analysis

I. Introduction

II. History of § 7428

A. Qualification as a Public Charity - Benefits of Public Charity Status

B. Bob Jones University and "Americans United" Cases

C. Legislative Response

III. Outline of Statutory Provisions - § 7428

A. In General

B. Creation of the Remedy

C. Limitations on the Remedy

D. Validation of Contributions

IV. Jurisdiction and Venue

A. Choice of Forum

1. Legislative History

2. Case Law Restricts Forum Shopping

B. Power to Render a Declaratory Judgment Is Discretionary

1. Concurrent Actions Involving Exempt Status

2. Remand to Obtain IRS Determination

C. Jurisdictional Statutes

1. Tax Court

2. D.C. District Court

3. Court of Federal Claims

4. Determining Jurisdiction

D. Actual Controversy

1. Actual Controversy Standard

2. No Actual Controversy

E. IRS Determination

1. General Rule

2. Role of Charitable Contributions in IRS Determinations

3. Determination Must Relate to § 7428 Matters

4. Determination Must Be Final

5. Determination Must Be Adverse

a. More Advantageous Status Sought

b. Adverse Ruling on Proposed Transaction

F. Initial or Continuing Qualification or Classification

1. Initial Qualification or Classification

2. Continuing Qualification or Classification

3. Retroactive Determinations

G. 90-Day Statute of Limitations

1. General Rule

2. Commencement of Limitations Period

3. Extension of Limitations Period Is Not Permitted

4. Limitations Period Where the IRS Refuses to Make a Determination

H. Exhaustion of Administrative Remedies

1. General Rule

2. Revenue Procedure 2007-52 and Regs. § 601.201(n)(7)

a. Qualification as a § 501(c)(3) Organization

(1) Request for Determination

(2) Additional Information Requested by the IRS

(3) Exhaustion of Appeal Rights

b. Classification as a Private or Operating Foundation

3. 270-Day Rule

a. Commencement of 270-Day Period

b. Expiration of 270-Day Period

c. "No-Ruling" Situations

4. Final Adverse Determination

V. Procedural Aspects

A. Proper Parties

1. Plaintiffs and Petitioners

a. General Rule

b. Successor Organizations

c. Group Rulings

d. Joinder of Parties and Consolidation

2. Defendants and Respondents

B. Appropriate Pleadings

1. Complaints and Petitions

2. Answers

3. Replies

C. Burden of Proof

1. Incomplete Administrative Record

2. Circumstances Where Burden of Proof on Government

D. Permissible Evidence and Standard of Review

1. Review Limited to the Administrative Record in Initial Qualification and Classification Cases

a. Tax Court

b. D.C. District Court/U.S. Court of Federal Claims

c. Good Cause Exception

d. Newly-Asserted Defense Exception

e. Operational Test

f. Third-Party Material

2. Full Trial Available in Revocation Cases

3. Discovery

E. Permissible Arguments

F. Submission of the Administrative Record

G. Judgments and Appeals

1. Scope of the Remedy

2. Attorney's Fees and Costs

3. Public Recognition of Exempt Status

4. Power to Grant Equity

5. Effect of Judgment

6. Appeals

H. Settlements

VI. Validation of Contributions

A. General Rule

B. Limitations

1. Revocation Cases

2. Timely Petition

3. Individuals and § 170(c)(2) Organizations

4. $1,000 Limit

5. Loss of the Declaratory Judgment Case

6. Validation Period

Working Papers

Working Papers

Table of Worksheets

Worksheet 1 Rev. Proc. 2007-52, 2007-30 I.R.B. 222 Procedures for Obtaining Recognition of Exemption

Worksheet 2 Regs. § 601.201(n) - Procedures for Claiming Exemption under Section 501 or 521

Worksheet 3 Rev. Proc. 80-28, 1980-1 C.B. 680

Worksheet 4 Excerpt from H.R. Rep. No. 658, 94th Cong., 1st Sess. (1975) (Tax Reform Act of 1976)

Worksheet 5 Excerpt from S. Rep. No. 938, 94th Cong., 2d Sess. (1976) (Tax Reform Act of 1976)

Worksheet 6 IRM 35.2.2 - Answers in Declaratory Judgment Cases

Worksheet 7 IRM - Joint Motion to Submit under Tax Court Rule 122

Worksheet 8 IRM 35.2 - Exempt Organization Declaratory Judgment Procedures

Worksheet 9 Tax Court Rules Pertaining to Declaratory Judgments, With Rules Committee Notes

Worksheet 10 Court of Federal Claims Rules Which Pertain to the Preparation, Filing and Service of the Petition

Worksheet 11 District of Columbia District Court Rules Which Pertain to the Preparation, Filing and Service of the Complaint






Legislative History:

Treasury Rulings:












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