49–010 

Calendar No. 51 

114TH CONGRESS REPORT " ! SENATE 1st Session 114–28 

NOTICE FOR ORGANIZATIONS THAT INCLUDE CHARITIES 

IS ESSENTIAL (NOTICE) ACT 

APRIL 14, 2015.—Ordered to be printed 

Mr. HATCH, from the Committee on Finance, 

submitted the following 

R E P O R T 

[To accompany S. 918] 

The Committee on Finance, having considered an original bill, S. 

918, to amend the Internal Revenue Code of 1986 to provide notice 

to charities and other nonprofit organizations before their tax-exempt status is automatically revoked, having considered the same, 

reports favorably thereon without amendment and recommends 

that the bill do pass. 

CONTENTS 

Page 

I. LEGISLATIVE BACKGROUND ..................................................................... 1 

II. EXPLANATION OF THE BILL ...................................................................... 2 

A. Require Internal Revenue Service to Notify Exempt Organizations 

Before Revoking Exempt Status for Failing to File Information 

Returns (sec. 2 of the bill and sec. 6033(j) of the Code) .................. 2 

III. BUDGET EFFECTS OF THE BILL ............................................................... 6 

IV. VOTES OF THE COMMITTEE ...................................................................... 6 

V. REGULATORY IMPACT AND OTHER MATTERS ..................................... 7 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED 7 

I. LEGISLATIVE BACKGROUND 

The Committee on Finance, having considered S. 918, the ‘‘Notice 

for Organizations That Include Charities is Essential (NOTICE) 

Act,’’ to amend the Internal Revenue Code of 1986 to provide notice 

to charities and other nonprofit organizations before their tax-exempt status is automatically revoked, reports favorably thereon 

without amendment and recommends that the bill do pass. 


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1 All section references are to the Internal Revenue Code of 1986, as amended (the ‘‘Code’’), 

unless otherwise noted. 2See sec. 508(a). 

Background and need for legislative action 

Background.—Based on a proposal recommended by Senators 

Coats and Cardin, and on S. 400 (114th Cong. 1st Sess.), co-sponsored by Senators Coats and Cardin, the Committee on Finance 

marked up original legislation (the ‘‘Notice for Organizations That 

Include Charities is Essential (NOTICE) Act’’) on February 11, 

2015, and, with a majority present, ordered the bill favorably reported. 

Need for legislative action.—Under present law, the IRS does not 

have the discretion to reinstate an organization’s exempt status 

without requiring a formal reapplication for exempt status (Form 

1023 or Form 1024) if the organization has had its exempt status 

automatically revoked for failing to file information returns. This 

reapplication requirement has added tens of thousands of applications to the IRS’s backlog of unprocessed applications. Furthermore, present law does not require the IRS to notify an organization that has already failed to file a return for two consecutive 

years that it is at risk of revocation if it fails to file for a third consecutive year. Many of the affected organizations are small and 

poorly funded, yet face increased demand for their services from 

the communities they serve. As a result, requiring reapplication 

can pose a significant financial burden on these organizations and 

their communities. The Committee therefore believes it is appropriate to require the IRS to notify organizations that are at risk of 

losing exempt status for failure to file and to permit the IRS to reinstate an organization’s exempt status without requiring reapplication in certain situations. 

II. EXPLANATION OF THE BILL 

A. REQUIRE INTERNAL REVENUE SERVICE TO NOTIFY EXEMPT ORGA- NIZATIONS BEFORE REVOKING EXEMPT STATUS FOR FAILING TO

FILE INFORMATION RETURNS (SEC. 2 OF THE BILL AND SEC. 6033(j) 

OF THE CODE) 

PRESENT LAW

Applications for tax exemption 

Section 501(c)(3) organizations 

Section 501(c)(3) 1 organizations (with certain exceptions) are required to seek formal recognition of tax-exempt status by filing an 

application with the IRS (Form 1023 (Application for Recognition 

of Exemption under section 501(c)(3) of the Internal Revenue Code) 

or Form 1023–EZ (Streamlined Application for Recognition of Exemption under section 501(c)(3) of the Internal Revenue Code)).2 In 

response to the application, the IRS issues a determination letter 

or ruling either recognizing the applicant as tax-exempt or not. 

Certain organizations are not required to apply for recognition of 

tax-exempt status in order to qualify as tax-exempt under section 

501(c)(3) but may do so. These organizations include churches, certain church-related organizations, organizations (other than private 

foundations) the gross receipts of which in each taxable year are 


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3Pursuant to Treas. Reg. sec. 301.9100–2(a)(2)(iv), organizations are allowed an automatic 12- 

month extension as long as the application for recognition of tax exemption is filed within the 

extended, i.e., 27-month, period. The IRS also may grant an extension beyond the 27-month period if the organization is able to establish that it acted reasonably and in good faith and that 

granting relief will not prejudice the interests of the government. Treas. Reg. secs. 301.9100– 

1 and 301.9100–3. 4Treas. Reg. sec. 1.508–1(a)(1). 

5Sec. 508(d)(2)(B). Contributions made prior to receipt of a favorable determination letter may 

be deductible prior to the organization’s receipt of such favorable determination letter if the organization has timely filed its application to be recognized as tax-exempt. Treas. Reg. secs. 

1.508–1(a) and 1.508–2(b)(1)(i)(b). 6 Rev. Proc. 2015–9. 

normally not more than $5,000, and organizations (other than private foundations) subordinate to another tax-exempt organization 

that are covered by a group exemption letter. 

A favorable determination by the IRS on an application for recognition of tax-exempt status generally will be retroactive to the 

date that the section 501(c)(3) organization was created if it files 

a completed Form 1023 within 15 months of the end of the month 

in which it was formed.3 If the organization does not file Form 

1023 or files a late application, it will not be treated as tax-exempt 

under section 501(c)(3) for any period prior to the filing of an application for recognition of tax exemption.4 Contributions to section 

501(c)(3) organizations that are subject to the requirement that the 

organization apply for recognition of tax-exempt status generally 

are not deductible from income, gift, or estate tax until the organization receives a determination letter from the IRS.5

Other section 501(c) organizations 

Most other types of section 501(c) organizations—including organizations described within sections 501(c)(4) (social welfare organizations, etc.), 501(c)(5) (labor organizations, etc.), or 501(c)(6) (business leagues, etc.)—are not required to provide notice to the Secretary that they are requesting recognition of exempt status. Rather, organizations are exempt under these provisions if they satisfy 

the requirements applicable to such organizations. However, in 

order to obtain certain benefits such as public recognition of taxexempt status, exemption from certain State taxes, and nonprofit 

mailing privileges, such organizations voluntarily may request a 

formal recognition of exempt status by filing a Form 1024 (Application for Recognition of Exemption under section 501(a)). 

If such an organization voluntarily requests a determination letter by filing Form 1024 within 27 months of the end of the month 

in which it was formed, its determination of exempt status, once 

provided, generally will be effective as of the organization’s date of 

formation.6 If, however, the organization files Form 1024 after the 

27-month deadline has passed, its exempt status will be formally 

recognized only as of the date the organization filed Form 1024. 

Annual information returns 

Exempt organizations are required to file an annual information 

return, Form 990 (Return of Organization Exempt From Income 

Tax), stating specifically the items of gross income, receipts, disbursements, and such other information as the Secretary may preVerDate Sep 11 2014 23:32 Apr 17, 2015 Jkt 049010 PO 00000 Frm 00003 Fmt 6659 Sfmt 6602 E:\HR\OC\SR028.XXX SR028

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7Sec. 6033(a). An organization that has not received a determination of its tax-exempt status, 

but that claims tax-exempt status under section 501(a), is subject to the same annual reporting 

requirements and exceptions as organizations that have received a tax-exemption determination. 8Sec. 6033(a)(3); Treas. Reg. secs. 1.6033–2(a)(2)(i) and (g)(1). 

9Treas. Reg. sec. 1.501(a)–1(a)(2). 

10 Rev. Proc. 2015–9, sec. 12. 11 Ibid. 

scribe.7 Exempt from the requirement are churches, their integrated auxiliaries, and conventions or associations of churches; the 

exclusively religious activities of any religious order; certain State 

institutions whose income is excluded from gross income under section 115; an interchurch organization of local units of a church; certain mission societies; certain church-affiliated elementary and 

high schools; and certain other organizations, including some that 

the IRS has relieved from the filing requirement pursuant to its 

statutory discretionary authority.8

An organization that is required to file an information return, 

but that has gross receipts of less than $200,000 during its taxable 

year, and total assets of less than $500,000 at the end of its taxable 

year, may file Form 990–EZ. If an organization normally has gross 

receipts of $50,000 or less, it must file Form 990–N (‘‘e-postcard’’), 

if it chooses not to file Form 990 or Form 990–EZ. Private foundations are required to file Form 990–PF rather than Form 990. 

Revocation of exempt status 

In general 

An organization that has received a favorable tax-exemption determination from the IRS generally may continue to rely on the determination as long as ‘‘there are no substantial changes in the organization’s character, purposes, or methods of operation.’’ 9 A ruling or determination letter concluding that an organization is exempt from tax may, however, be revoked or modified: (1) by notice 

from the IRS to the organization to which the ruling or determination letter was originally issued; (2) by enactment of legislation or 

ratification of a tax treaty; (3) by a decision of the United States 

Supreme Court; (4) by issuance of temporary or final Regulations 

by the Treasury Department; (5) by issuance of a revenue ruling, 

a revenue procedure, or other statement in the Internal Revenue 

Bulletin; or (6) automatically, in the event the organization fails to 

file a required annual return or notice for three consecutive years 

(discussed in greater detail below).10 A revocation or modification 

of a determination letter or ruling may be retroactive if, for example, there has been a change in the applicable law, the organization 

omitted or misstated a material fact, or the organization has operated in a manner materially different from that originally represented.11

Upon revocation of tax-exemption or change in the classification 

of an organization (e.g., from public charity to private foundation 

status), the IRS publishes an announcement of such revocation or 

change in the Internal Revenue Bulletin. Contributions made to organizations by donors who are unaware of the revocation or change 

in status ordinarily will be deductible if made on or before the date 

of publication of the announcement. 


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12Sec. 6033(j). 

Automatic revocation for failure to file information returns 

If an organization fails to file a required Form 990-series return 

or notice for three consecutive years, the organization’s tax-exempt 

status is automatically revoked.12 A revocation for failure to file is 

effective from the date that the Secretary determines was the last 

day the organization could have timely filed the third required information return or notice. To again be recognized as tax-exempt, 

the organization must apply to the Secretary for recognition of taxexemption, irrespective of whether the organization was required to 

make an application for recognition of tax-exemption in order to 

gain tax-exemption originally. 

If, upon application for tax-exempt status after an automatic revocation for failure to file information returns, the organization 

shows to the satisfaction of the Secretary reasonable cause for failing to file the required annual notices or returns, the organization’s 

tax-exempt status may, in the discretion of the Secretary, be reinstated retroactive to the date of revocation. An organization may 

not challenge under the Code’s declaratory judgment procedures 

(section 7428) a revocation of tax-exemption made for failure to file 

annual information returns. 

The Secretary is authorized to publish a list of organizations 

whose exempt status is automatically revoked. 

REASONS FOR CHANGE

Under present law, the IRS does not have the discretion to reinstate an organization’s exempt status without requiring a formal 

reapplication for exempt status (Form 1023 or Form 1024) if the organization has had its exempt status automatically revoked for failing to file information returns. This reapplication requirement has 

added tens of thousands of applications to the IRS’s backlog of unprocessed applications. Furthermore, present law does not require 

the IRS to notify an organization that has already failed to file a 

return for two consecutive years that it is at risk of revocation if 

it fails to file for a third consecutive year. Many of the affected organizations are small and poorly funded, yet face increased demand 

for their services from the communities they serve. As a result, requiring reapplication can pose a significant financial burden on 

these organizations and their communities. The Committee therefore believes it is appropriate to require the IRS to notify organizations that are at risk of losing exempt status for failure to file and 

to permit the IRS to reinstate an organization’s exempt status 

without requiring reapplication in certain situations. 

EXPLANATION OF PROVISION

The provision requires that the IRS provide notice to an organization that fails to file a Form 990-series return or notice for two 

consecutive years not later than 300 days after the date of the second failure. The notice must state that the IRS has no record of 

having received such a return or notice from the organization for 

two consecutive years and inform the organization about the consequences of failing to file such a return or notice by the date of 

the next filing deadline. The notice must also contain information 


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about how to comply with the annual information return and notice 

requirements under sections 6033(a)(1) and 6033(i). 

The provision also provides that the Secretary may reinstate the 

exempt status of an organization that had its exempt status automatically revoked for failing to file an information return or notice 

for three consecutive years if (1) the organization demonstrates to 

the satisfaction of the Secretary that it did not receive the abovedescribed notice from the IRS, and (2) files an annual return or notice for the current year. Under such circumstances, the exempt 

status is reinstated as of the date of revocation. 

EFFECTIVE DATE

The provision is effective for notices and returns required to be 

filed after December 31, 2014. 

III. BUDGET EFFECTS OF THE BILL 

A. COMMITTEE ESTIMATES

In compliance with paragraph 11(a) of rule XXVI of the Standing 

Rules of the Senate and section 308(a)(1) of the Congressional 

Budget and Impoundment Control Act of 1974, as amended (the 

‘‘Budget Act’’), the following statement is made concerning the estimated budget effects of the revenue provision of the ‘‘Notice for Organizations That Include Charities is Essential (NOTICE) Act’’ as 

reported. 

The provision is estimated to have a negligible effect on Federal 

fiscal year budget receipts for the period 2015–2025. 

B. BUDGET AUTHORITY AND TAX EXPENDITURES

Budget authority 

In compliance with section 308(a)(1) of the Budget Act, the Committee states that no provisions of the bill as reported involve new 

or increased budget authority. 

Tax expenditures 

In compliance with section 308(a)(1) of the Budget Act, the Committee states that no provisions of the bill as reported affect the 

levels of tax expenditures. 

C. CONSULTATION WITH CONGRESSIONAL BUDGET OFFICE

In accordance with section 402 of the Budget Act, the Committee 

advises that the Congressional Budget Office has not submitted a 

statement on the bill. The letter from the Congressional Budget Office will be provided separately. 

IV. VOTES OF THE COMMITTEE 

In compliance with paragraph 7(b) of rule XXVI of the Standing 

Rules of the Senate, the Committee states that, with a majority 

present, the ‘‘Notice for Organizations That Include Charities is Essential (NOTICE) Act,’’ was ordered favorably reported by voice 

vote on February 11, 2015. 


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V. REGULATORY IMPACT AND OTHER MATTERS 

A. REGULATORY IMPACT

Pursuant to paragraph 11(b) of rule XXVI of the Standing Rules 

of the Senate, the Committee makes the following statement concerning the regulatory impact that might be incurred in carrying 

out the provisions of the bill. 

Impact on individuals and businesses, personal privacy and paperwork 

The bill requires the Internal Revenue Service to notify organizations before exempt status is revoked for failing to file information 

returns. The provisions of the bill are not expected to impose additional administrative requirements or regulatory burdens on individuals or businesses. 

The provisions of the bill do not impact personal privacy. 

B. UNFUNDED MANDATES STATEMENT

This information is provided in accordance with section 423 of 

the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104–4). 

The Committee has determined that the tax provision of the reported bill does not contain Federal private sector mandates or 

Federal intergovernmental mandates on State, local, or tribal governments within the meaning of Public Law 104–4, the Unfunded 

Mandates Reform Act of 1995. 

C. TAX COMPLEXITY ANALYSIS

Section 4022(b) of the Internal Revenue Service Reform and Restructuring Act of 1998 (‘‘IRS Reform Act’’) requires the staff of the 

Joint Committee on Taxation (in consultation with the Internal 

Revenue Service and the Treasury Department) to provide a tax 

complexity analysis. The complexity analysis is required for all legislation reported by the Senate Committee on Finance, the House 

Committee on Ways and Means, or any committee of conference if 

the legislation includes a provision that directly or indirectly 

amends the Internal Revenue Code and has widespread applicability to individuals or small businesses. The staff of the Joint 

Committee on Taxation has determined that there are no provisions that are of widespread applicability to individuals or small 

businesses. 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, 

AS REPORTED 

In the opinion of the Committee, it is necessary in order to expedite the business of the Senate, to dispense with the requirements 

of paragraph 12 of rule XXVI of the Standing Rules of the Senate 

(relating to the showing of changes in existing law made by the bill 

as reported by the Committee). 

Æ 


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