Rev. Proc. 57-5

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to set forth procedures as to the issuance, by the National Office, of registered notification letters and the granting of conferences with respect to cases involving prohibited transactions within the contemplation of section 503(c) of the Internal Revenue Code of 1954.

SEC. 2. BACKGROUND.

Section 503(a) of the Code denies exemption to organizations described in section 501(c)(3), except those excluded under subsection (b), and employees' trusts which are qualified under section 401(a), which engage in prohibited transactions as described in section 503(c) of the Code. If the prohibited transaction is entered into with the purpose of diverting corpus or income of the organization from its exempt purposes, and such transaction involves a substantial part of the corpus or income of the organization, it loses its exempt status forthwith and no notice is required. In other cases, however, exemption is denied only for taxable years after the taxable year during which the Commissioner issues a notice by registered or certified mail addressed to the organization at its last known address.

SEC. 3. NOTIFICATION THROUGH NATIONAL OFFICE.

Information obtained, and facts developed, by District Directors' offices upon examination of tax returns or through other sources, with respect to prohibited transactions, will be forwarded to the National Office with appropriate recommendations. The National Office will consider such information, and other information coming directly to its attention, for the purpose of determining whether a prohibited transaction has been entered into and, if so, for the issuance of the notice.

SEC. 4. CONFERENCES.

.01 The organization involved may be granted a conference at the National Office, relative to a determination whether a prohibited transaction has been entered into, either before or after the issuance of the notice. A conference will usually be granted in advance of issuance of the notice where the case reaches the National Office during the early part of a taxable year and it appears that action can be completed before the close of such year. In other cases, a conference will be granted after the notice is issued and, if it is determined that the notice was issued in error, it will be rescinded as of the date of issuance. Where an organization is advised through a District Director's office that the case has been forwarded to the National Office for a determination whether a prohibited transaction has been entered into, it may make a written request for a conference and submit a brief or statement directly to the National Office after filing copies with the District Director and stating that such copies have been filed. Where an organization is not so advised through a District Director's office, it may be advised through the National Office that it may request a conference and submit a brief or statement. Such advice will be issued if, in the opinion of the National Office, it appears that action can be completed before the close of the taxable year in which the information was obtained. In other cases, where the notice is issued, the organization may then request a conference and submit a brief or statement.

.02 If a conference is requested, a time and place will be set and the organization advised. The organization may be represented by an officer, or trustee, or by a fully authorized regular employee, or by a person who is enrolled to practice before the Treasury Department and duly authorized to appear on its behalf. A determination will be made after consideration of all the facts presented, conferences, discussions, and briefs and statements submitted, and the organization will be notified by the National Office as to such determination.

SEC. 5. EFFECTIVE DATE.

This Revenue Procedure is effective immediately.