The Determination Letter
After submitting the application, you can expect a letter from the IRS in about eight weeks acknowledging the receipt of your application. Usually the letter will ask you for additional information. This is entirely normal and is not a cause for alarm. If you had a tax professional prepare your application, she can help you with this stage. If you have not had anyone review your application, this is a good time to reconsider that decision. If there are questions, carefully prepare a written response.
If there are ten or fewer questions, you are probably in very good shape and you can expect approval of your application without additional hassle. If, on the other hand, there are fifteen or more questions, there may be problems with your application. Regardless, answer all questions truthfully and in detail and submit the answers to the IRS within the deadlines stated in the letter.
The letter will give you the name and telephone number of your contact person at the IRS. Call this person and find out exactly what he wants to know. Contact people can often be very helpful, and the information they give you can help you focus your response to the letter.
If It Is Not on Paper, It Does Not Exist
Any telephone conversations you have with your IRS contact person are informational only. The only answers to the written questions that matter are your written responses. Both your organization and the IRS are establishing a paper trail, which allows everyone involved to reference what happened before so there are no misunderstandings.
Remember, the IRS is not trying to stall the process or otherwise complicate matters. They do, however, need to be absolutely certain that you have met all the required benchmarks if they are going to issue a favorable determination.
In due course, the IRS will send you either a favorable or an unfavorable determination letter. If it is unfavorable for a 501(c)(3) determination, some applicants are offered a favorable determination for a 501(c)(4) organization. If it is favorable, you have every right to celebrate. Save this letter. It is very important. Not only does it give you critical information about compliance with the IRS, but your potential funding sources will usually ask you for a copy. Make copies of the determination letter and keep the original in a safe place. Over the life of the organization, you may send out copies of that letter dozens—if not hundreds—of times, so make certain you never lose the original.
A Denied Application
There will be situations when the IRS determines that your organization does not qualify for a 501(c)(3) determination, and grants you a 501(c)(4) status as an alternative. They may also deny you, without presenting an alternative.
One common problem is that supporting documents are not strong enough. You may believe you qualified as an educational organization, for example, but the material or your narrative didn't support that claim.
If you are not satisfied with the decision, you have the right to appeal within thirty days of the decision. The appeal needs to be initiated by a letter to the IRS Appeals Office detailing the reasons you feel the decision was not accurate and requesting a conference. The address to send the letter will be on the denial letter you received from the IRS.
If the appeal is not made within the thirty-day window from the time the denial was issued, the decision will be considered final. Likewise, if the decision on appeal is not favorable, you will have exhausted your options.
If you plan to appeal the decision, consult an attorney familiar with the IRS appeal process. The stakes are too high and the possible details so numerous that it is best to seek such consultation.