In response to the D.C. Circuit’s holding that the regulations the IRS had relied on to not disclose rulings denying or revoking organizations’ tax-exempt status violated the disclosure provisions of Sec. 6110 (Tax Analysts, 350 F.3d 100 (D.C. Cir. 2003)), the IRS has issued final regulations amending the earlier regulations (T.D. 9581).
Tax Analysts, a publisher of tax news, had sought disclosure of documents related to denials and revocations of tax-exempt status under Sec. 6110, which permits public inspection of the IRS’ written determinations and any background files related to those determinations. The IRS had taken the position that documents related to successful applications for tax exemption should be disclosed, but not those related to denying or revoking tax exemption, and had promulgated regulations under both Sec. 6104 and Sec. 6110 to support this position.
The appeals court found that Sec. 6104(a)(1)(A), which requires “any letter or other document issued by” the IRS with respect to the application for tax exemption be open to public inspection, clearly includes documents that grant, deny or revoke tax-exempt status. As a result, IRS regulations directing otherwise violated the plain language of the statute. T.D. 9581 removes former Regs. Sec. 301.6104(a)-1(i), Material Not Open to Public Inspection Under Section 6104 or 6110, amends Regs. Sec. 301.6104(a)-1(c) to address “[l]etters or documents issued by the … [IRS] with respect to an application for exemption from Federal income tax,” and expands the definition of “supporting documents.”
The new regulations retain the rule that no disclosure is required while an exemption application is pending but amend the rest of Regs. Sec. 301.6104(a)-1 to eliminate all references to withholding documents related to the denial or revocation of tax exemption. These changes move the IRS closer to the full disclosure that was originally intended when the disclosure rules were first enacted.
The final regulations adopt proposed regulations issued in 2007 (REG-116215-07). The only comment the IRS received on the proposed regulations (a comment from Tax Analysts) suggested that Prop. Regs. Sec. 301.6104(a)-1(f) had to be revised to reflect the holding in the Tax Analysts decision. The IRS accepted this suggestion, and the final regulations amend paragraph (f) to explain that negative determinations issued to organizations that applied for tax-exempt status are included among the written determinations that are made available under Sec. 6110.
The new rules are effective Feb. 29, 2012.