For organizations facing the potential loss of their tax-exempt status, the procedures for challenging a proposed or actual revocation may seem overwhelmingly complex. While the underlying issues involved may be complicated, focusing on three key procedural considerations can help to clarify the path forward.
- Protest within 30 days. The law that provides for the ability to challenge a revocation in court requires an exhaustion of administrative remedies prior to filing suit. As a practical matter, this means that the organization must first challenge a proposed revocation with the Internal Revenue Service (IRS) by filing an administrative appeal (otherwise known as a “protest”). The protest must be filed with the examining agent no later than 30 days following the date of the notice proposing revocation of the organization’s tax-exempt status. The examining agent will forward the protest, along with a rebuttal, to the IRS Independent Office of Appeals, which will schedule an appeals conference. Though an extension of time to file a protest can be requested, the granting of such a request is not guaranteed. Failure to request an administrative appeal can result in a court dismissing a later suit challenging a final determination of revocation on the grounds that the organization failed to exhaust its administrative remedies.
- File suit within 90 days. If the organization receives a final, adverse determination, it may then – having exhausted its administrative remedies – file a declaratory judgment action to challenge the revocation. As with the filing of an administrative appeal, meeting the prescribed filing deadline is of critical importance. By statute, an organization has just 90 days to file suit to challenge a final determination of revocation. And unlike the protest filing deadline, the 90 days may not be extended.
- Consider the forum. Lawsuits challenging a revocation may be filed in one of three courts – the U.S. Tax Court, the U.S. Court of Federal Claims, or the District Court for the District of Columbia. Each forum comes with its own unique rules and limitations, and choice of forum will depend on, among other things, the individual facts and circumstances and precedent in the particular trial court and corresponding appellate circuit. Organizations concerned about a potential revocation should plan ahead by thoughtfully considering which forum would be most appropriate for their case.
About Kostelanetz LLP
For nearly 80 years, Kostelanetz LLP has built a global reputation as a law firm of choice for clients facing high-stakes tax controversies, criminal investigations, and negotiations with government agencies. We are regularly called upon to handle the most challenging and sensitive matters and approach each matter strategically based on decades of administrative and litigation experience. Many of our attorneys have served as former senior officials within the Internal Revenue Service, the U.S. Department of Justice, the Securities and Exchange Commission, and federal and state prosecutors’ offices. Our attorneys are particularly skilled at resolving matters at the administrative level when possible, but do not hesitate to litigate to obtain the most favorable results for our clients. We have deep experience litigating matters in U.S. Tax Court and federal district courts and handling appeals all the way to the Supreme Court. Kostelanetz attorneys have successfully resolved proposed revocations of organizations’ tax-exempt status at both the administrative level and in court. We also have experience working with organizations on “wellness checks” to identify any potential weaknesses prior to pursuing litigation.
