Rev. Proc. 73-7

Section 1. Purpose and Scope

The purpose of this Revenue Procedure is to describe the procedures of the Internal Revenue Service in issuing rulings and determination letters on private foundation status under section 509(a), and operating foundation status under section 4942(j)(3), of organizations exempt from Federal income tax under section 501(c)(3) of the Internal Revenue Code of 1954. These procedures apply in connection with notices filed by organizations on Form 4653, Notification Concerning Foundation Status, or with applications for recognition of exempt status under section 501(c)(3) of the Code. Such notices and statements are filed by organizations in accordance with section 508(b) of the Code, and the Income Tax Regulations thereunder, in order for an organization to avoid the presumption of private foundation status or to claim status as an operating foundation.

Sec. 2. Background

.01 As a result of the Tax Reform Act of 1969, P.L. 91-172, 1969-3 C.B. 10, it may be necessary that the Service make up to three separate determinations of status with respect to each organization applying for recognition of exemption from Federal income tax under section 501(c)(3) of the Code. The first determination is whether an organization qualifies as an organization described in section 501(c)(3) of the Code. If an organization establishes its tax exempt status under section 501(c)(3), the Service will then determine whether the organization is a private foundation under section 509(a) of the Code. If the organization is a private foundation, the Service may also determine whether it is a private operating foundation described in section 4942(j)(3) of the Code.

.02 The procedures of the Service in processing applications for recognition of exemption under section 501(c)(3) are described in Revenue Procedure 72-4, 1972-1 C.B. 706. Since exemption applications under section 501(c)(3) now also contain foundation status issues, this Revenue Procedure describes the Service's practices and procedures for issuing rulings and determination letters on such issues.

Sec. 3. Determinations of Foundation Status in Exemption Application Cases

.01 When used in this Revenue Procedure, the term "key District Director" means the District Director of one of the 16 exempt organization key districts or the Director of International Operations. A list of such key district offices and the area covered by each is set out in section 4.01 of Revenue Procedure 72-4.

.02 In accordance with Delegation Order No. 113 (Rev. 1), 1970-2 C.B. 489, key District Directors are authorized to issue determination letters involving foundation status under section 509(a) and operating foundation status under section 4942(j)(3) of the Code.

.03 Pursuant to this authority, key District Directors will issue favorable or adverse determinations on foundation status issues. Adverse determinations are subject to technical advice from the National Office under the protest and conference procedures of Section 6 of this Revenue Procedure.

.04 Where the exemption issue is referred to the National Office for decision, under the procedures of Rev. Proc. 72-4, 1972-1 C.B. 706, the foundation issue will also be the subject of a National Office ruling.

.05 For the purpose of this Revenue Procedure, the term "determination letter" includes letters issued by a key District Director on the basis of technical advice secured from the National Office pursuant to the procedures prescribed above.

Sec. 4. Determinations of Foundation Status Involving Forms 4653, Notification of Foundation Status

.01 Key District Directors will also issue favorable or adverse determinations on foundation status issues in response to notifications made by organizations on the Form 4653, Notification of Foundation Status. Adverse determinations are subject to technical advice from the National Office under the protest and conference procedures of Section 6 of this Revenue Procedure.

Sec. 5. National Office Review of Determination Letters on Foundation Status Under Section 509(a) of the Code

.01 Section 9 of Revenue Procedure 72-4, provides that determination letters on exemption issues under section 501 of the Code are subject to National Office review. Determination letters concerning foundation status under section 509(a) and 4942(j)(3) of the Code are also subject to review.

.02 If the National Office takes exception to a determination letter, the established procedures described in section 9 of the Revenue Procedure 72-4 will be followed.

Sec. 6. Protest of Adverse Determination Letters

.01 Upon the issuance of a determination letter adverse to an organization, the key District Director will advise the organization of its right to protest the determination by submitting a statement of the facts, law, and argument in support of its notice or statement, and of its right to a district office conference. An organization will have a right to only one protest and conference in the key district.

.02 If, after considering the organization's protest and any information developed in conference, the key District Director maintains his position and the organization does not agree, the file will be referred to the National Office. The referral will be considered a request for technical advice and the procedures of Revenue Procedure 72-2, 1972-1 C.B. 695, will be followed.

.03 The adverse determination letter will serve to inform the organization of the pertinent facts and the question or questions proposed for submission to the National Office, and will be deemed to satisfy the requirements of section 4.02 of Revenue Procedure 72-2, relating to district notification to taxpayers of requests for technical advice.

.04 The organization may waive its right to a key district office conference and request referral of the matter directly to the National Office. The key District Director will advise the organization in writing that the matter will be referred to the National Office in accordance with its request only after a statement is filed setting forth the facts, law, and arguments in support of its notice or statement. In addition, the organization will be asked to specify whether it desires a conference in the National Office in the event an adverse decision is indicated.

Sec. 7. Effect on Other Documents

.01 Revenue Procedure 72-3, 1972-1 C.B. 698, is modified to the extent that this Revenue Ruling provides special procedures for issuing determinations concerning foundation status under sections 509(a) and 4942(j)(3) of the Code.

.02 Revenue Procedure 72-4, 1972-1 C.B. 706, is amplified to the extent that additional procedures are provided for processing application for recognition of exemption under section 501(c)(3) of the Code containing section 508(b) notices.