The Tax Law of Charitable Giving. Bruce R. Hopkins

that its character, purposes, activities, and method of operation satisfy the qualification requirements for charitable entities in order for contributors (and grantors) to have the assurance that their contributions are deductible at the time they are made.⁵⁸⁸

Once an organization has received a determination letter from the IRS classifying it as a public charity,⁵⁸⁹ the treatment of contributions to it will not be adversely affected by reason of revocation by the IRS of the organization's classification as a public charity until the date on which notice of status is made to the public.⁵⁹⁰ For years, this listing was accomplished by means of IRS Publication 78, then Exempt Organizations Select Check.

(a) IRS's Searchable Databases

The IRS announced, on May 1, 2018, its change of the name Exempt Organizations Select Check to Tax Exempt Organization Search (TEOS). The three databases on Select Check—the listing of entities eligible to receive deductible charitable contributions, the list of entities that have had their exemption automatically revoked for failure to file returns or notices,⁵⁹¹ and the information reported in e-postcards (Form 990-N)⁵⁹²—are retained in TEOS.⁵⁹³

TEOS also includes images of Form 990 series returns filed by tax-exempt organizations on or after January 1, 2018 (to the extent this information is available to the public), and images of favorable determination letters issued by the IRS recognizing exemption on or after January 1, 2014.⁵⁹⁴

Another of these databases is the IRS electronic Business Master File (EO BMF), which is an extract of certain information concerning most categories of tax-exempt organizations. Among the data fields provided by the EO BMF Extract are indications as to whether a charitable entity is a public charity or private foundation and the various types of supporting organizations. This database is generally updated monthly.⁵⁹⁵

(b) Charitable Status Reliance Rules

If an organization listed in or covered by TEOS or EO BMF Extract ceases to qualify as an entity to which contributions are deductible and the IRS revokes the organization's determination letter, contributors to the entity may generally rely on the letter information provided in either database that contributions are deductible until the date of a public announcement (such as in the Internal Revenue Bulletin) stating that the organization no longer qualifies as a charitable entity.⁵⁹⁶

If an organization listed in or covered by either of these databases ceases to qualify as a charitable entity as a result of an automatic revocation of tax-exempt status,⁵⁹⁷ contributions made to the organization by persons unaware of the organization's change in status generally will be considered deductible if made on or before the date its name is posted on the auto-revocation list.⁵⁹⁸

The IRS has the authority to extend the period for which a contribution is deductible under certain circumstances. One circumstance is where a legally enforceable obligation was made to an organization prior to the date of a public announcement or posting and satisfaction of the obligation occurs on or after that date.⁵⁹⁹ The IRS, however, is not precluded from disallowing a deduction for a contribution made after an organization ceases to qualify as a charitable entity and prior to public announcement or posting of revocation if the contributor had knowledge of revocation of the determination letter prior to the public announcement or posting, was aware that the revocation was imminent, or was in part responsible for, or was aware of, the activities or deficiencies on the part of the organization that gave rise to the loss of qualification.⁶⁰⁰

Contributors may rely on an organization's subsequent listing in TEOS or the EO BMF Extract for contributions made after the date of the subsequent listing even if the organization's tax-exempt status was previously revoked if the date the organization is posted in TEOS or the EO BMF Extract is after the date of public announcement of revocation of the organization's exempt status.⁶⁰¹ A similar rule applies in connection with the auto-revocation process.⁶⁰²

(c) Safe Harbor Rules as to Public Charity Status

Rules similar to those concerning charitable status apply with regard to reliance on these databases in connection with organizations' public charity status.⁶⁰³

Grantors and contributors are not considered responsible for, or aware of, an act that results in the loss of classification of publicly supported charity status due to a change in financial support if the aggregate of grants or contributions received from a grantor or contributor for the tax year of the recipient organization in which the grant or contribution is received is 25 percent or less of the aggregate support received by the organization for the four tax years immediately preceding the tax year.⁶⁰⁴

This safe harbor is not available to a grantor or contributor who is in a position of authority with respect to the recipient organization (or who otherwise has the ability to exercise control over the recipient organization), or to a person standing in a relationship⁶⁰⁵ with respect to the person who is in a position of authority or control. The safe harbor also is inapplicable if the grantor or contributor has actual knowledge of the loss of classification of public charity status or after the date of public announcement that the organization ceases to qualify as a public charity.⁶⁰⁶

Private foundation grantors are not considered responsible for, or aware of, an act that results in a recipient organization's loss of classification as a public charity due to a change in financial support if the recipient organization has received a determination letter that it is a publicly supported charity and the organization is not controlled, directly or indirectly, by the private foundation. This safe harbor is inapplicable if the private foundation has actual knowledge of the loss of classification of public charity status or after the date of public announcement that the organization ceases to qualify as a public charity.⁶⁰⁷

A remedy under declaratory judgment procedures is available, in part, for cases involving a determination by the IRS with respect to the continuing qualification of an organization as a charitable entity or a public charity.⁶⁰⁸ This body of law nonetheless provides for the “validation of certain contributions” made during the pendency of a declaratory judgment proceeding; under this rule, the organization continues to be treated as an eligible charitable organization with respect to contributions from individuals (up to a maximum of $1,000 in the aggregate during the duration of the proceeding).