Advance Rulings

Some organizations that apply for certification under IRC § 501(c)(3) obtain an advance ruling that is good for five years.  At the end of the five year period, additional information is submitted to the IRS to obtain a final ruling.

Click here to see an article entitled Nonprofit 501(c)(3) tax exemptions and the five-year advance ruling period, written by Brad Caftel, the Legal Program Manager of The National Economic Development & Law Center, about what happens to a nonprofit organization's section 501(c)(3) charitable tax-exempt status at the conclusion of its five year advance ruling period.

Organizations that have not completed a tax year of at least 8 months must apply for an advance ruling.   It sometimes seems easier to obtain an advance ruling, even if it is possible to apply for a definitive ruling.  Additional information about an organization's income (similar to that described below) is required to apply for a definitive ruling.

IRS Form 8734 is used to submit additional information to the IRS at the end of the five year advance ruling period to obtain a final ruling.  Ordinarily the IRS sends out a letter before the end of an organization's five year advance ruling period, providing a copy of Form 8734 and specifying the due date for its filing.  However, the IRS has sometimes been late in sending out Form 8734 -- but timely filing by the organization is nonetheless required.  Click here for the IRS website's Form 8734, in Adobe PDF format.   Click here for a copy of the IRS instructions for Form 8734.

The information required to complete Form 8734 is primarily accounting data for the five or six accounting years that precede the filing of Form 8734.  It is helpful to keep this information as part of the organization's regular bookkeeping.  A sum for each year is required for the following principal categories:

           (1)      gifts, grants and contributions;
           (2)      membership fees;
           (3)      receipts from admissions, merchandise sold, services
                     performed or furnishing of facilities;
           (4)      income from interest, dividends, rents, royalties and
                     unrelated business income; and additional; and
           (5)      some more technical and unusual categories of income
                     and receipts.

  Additionally, Form 8734 requires a list showing the name and amount contributed by each donor (except government and grants from other § 501(c)(3) organizations) whose total donations for all years exceed 2% of your organization's total receipts (excluding category 3, above.)  Your organization also may be required to provide a list of persons donating more than $5,000 in each year and a list of donations received each year from your organization's officers, directors and their family members.

  The information described above is not all that may be required to complete Form 8734.  To be prepared to file Form 8734 at the end of the five year advance ruling period, it is helpful to obtain a copy of the form early on so that your bookkeeping allows you to provide the required information.