The IRS has charged a non-refundable processing fee for exemption applications since 1987. There is currently a two tier fee schedule. Organizations whose gross receipts have averaged, or will average, not more than $10,000 per year pay $150. Larger organizations pay $500. Some experts feel your application will be handled more promptly if you pay the User Fee with a cashier's check or money order. Others disagree. If you pay with a personal check, watch your bank statements carefully to make sure the IRS does, in fact, cash your check for the User Fee. If they don't, your application may have gotten lost in the mail.
A new IRS Revenue Procedure announcing the fees comes out each January; if you are submitting your apllication late in the year, there may be some benefit to getting it in before January 1st.
Mailing Address
Currently, all exemption applications are initially handled in the IRS Cincinnati Service Center, located in Covington, Kentucky. If you mail your application package, it should be sent to:
Internal Revenue Service
E.O. Application Receiving
P.O. Box 192
Covington, Kentucky 41012-0192
If you send your application by means of a delivery service which requires a street address, it should be sent to:
Internal Revenue Service
E.O. Application Receiving
Attn: Extracting Stop 312
201 West Rivercenter Blvd
Covington, Kentucky 41011
Screening
The Covington, Kentucky office should send you a brief letter acknowledging receipt of the application a few weeks after you mail it. All exemption applications are initially screened in Cincinnati to determine whether they can be closed without further development or correspondence with the organization. The typical organization whose application is closed in this way has most or all of the following characteristics: 1) a complete application (look here for more information), 2) "classic" 501(c)(3) activities (an example might be a PTA), 3) a relatively small budget, 4) no paid employees, and 5) no problem areas, such as transactions with insiders, or political activity.
An application the IRS approves without contacting the organization may take only six to ten weeks, start to finish. One quarter to one third of exemption applications receive such treatment. When the IRS feels that additional development is needed, processing is likely to take much longer (four to six months). Not surprisingly, many applicants are interested in expedited handling. Although the IRS is very reluctant to consider any application out of turn, they will sometimes be persuaded by a letter from an unrelated third party, such as a potential grantor, which explains the need for expedited treatment and mentions a specific deadline. Because exemption applications may travel to different parts of the country depending on the IRS workload, a letter of this kind must accompany the application when it is originally submitted. It probably wouldn’t hurt to write "Request for Expedited Treatment" at the top in large, bold letters, either.
For more information on putting together a complete do-it-yourself exemption application package, please go here.
Inquiry Letter
Two thirds to three fourths of the applications the IRS receives require additional development. IRS employees in offices all over the country handle this phase of processing. When an inquiry letter (Form letter 1312) is sent, you normally have 21 days to respond. If you need additional time, the agent handling the case will routinely grant an extension of ten days to two weeks. If that will not be enough time, however, the IRS usually prefers to close the case (Form letter 1314). Your file is kept in the immediate work area, and reopened automatically when your additional information comes in.
Caution! If you take more than 90 days to submit the additional information, IRS rules say that they can charge you a new "User Fee."
For more information on what questions the IRS asks most frequently, please go here.
Final Disposition
Once you have answered all of the IRS agent’s questions satisfactorily, a favorable determination letter will be issued. There are two main form letters used for a favorable 501(c)(3) determination - Form letter 1045 for an Advance Ruling, and Form letter 947 for a Definitive Ruling.
From 1994 to 2001, average IRS closings for 501(c)(3) applications were as follows:
Approvals 76.6%
Denials .6%
"Other" 22.8%
("Other" includes transfer to National Office, failure to provide additional information when requested, and status granted different from status applied for.)
If the IRS denies your application, they must provide you with a written explanation of the facts, law, and argument upon which their decision is based, as well as an explanation of your appeal rights.
Putting Together a
Complete Do-It-Yourself Exemption Application Package
What Questions Does the
IRS Ask Most Frequently?
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This page last updated October, 2002