The Nonprofit FAQ

Can a 501(c)(4) become a 501(c)(3)?

Larry Sanders of the South Yuba River Citizens League (http://www.syrcl.org) in Nevada City, CA, wrote to CharityLaw (a service of CharityChannel.com) on June 28, 2001: An organization received c(4) status many years ago, but its activities would qualify it as a c(3) The current board does not know why they applied for c(4) status, rather than c(3). Can they change their tax-exempt status now? If so, how? Barnaby Zall wrote from his law office in Rockville, MD, to answer: Yes. The most common way is to file a 1023 application with the Internal Revenue Service, noting on the application in the appropriate spaces the fact that this is a successor organization. Attach a cover letter explaining what you are doing, and use your existing materials and history (assuming it's good) as voluminous backup. The IRS is now using experienced agents as first-line screeners in Cincinnati (where the applications are filed), which should speed up the process immensely for well-qualified applicants. You could also do this through a private letter ruling, but the IRS fee for a PLR is $2,500, while a 1023 only costs $500. Adam H. Kerman of Chicago added these thoughts: "Operated as" is insufficient; you must also be "organized as". Likely, the state charter/articles of incorporation need amendment. What's the exempt purpose? Why is the change necessary? Is the Board willing to live with additional speech restrictions? (See the FAQ section on Advocacy at http://www.idealist.org/en/faqcat/21-74 for an explanation of these restrictions on 501(c)(3)s. -Ed.) Adam Kerman also asked under what circumstances a private letter ruling might be preferred, and Barnaby Zall replied: I put that option in just because it's theoretically possible (and was contemplated when Cincinnati was screwing up so often). Never done it myself, but I could see such a situation if you needed special treatment, such as retroactive effect of the exemption, a combined/global ruling, some group exemption-related treatment, consideration by TA rather than Cincinnati, or the like. For help with preparing Form 1023, see http://www.form1023help.com. Posted 6/28/01; form1023help info added 8/15/01 -- PB