zed,” violates its rights to equal protection, due process, and protection against cruel and unusual punishment.Key Issues: Whether the Tax Court has jurisdiction to adjudicate XC’s petition that sought a declaratory judgment that the revocation of its tax-exempt status was erroneous.Primary Holdings: No. Because XC’s corporate powers were suspended and had not been reinstated by the state of California when XC filed its petition or during the 90-day period in which the petition was required to be filed, the Tax Court lacked jurisdiction over the case. Case dismissed for lack of jurisdiction.Key Points of Law:Jurisdiction of the Tax Court. The U.S. Tax Court is an Article I court and possesses jurisdiction only to the extent conferred by Congress. See Freytag v. Commissioner, 501 U.S. 868, 870 (1991); see also 26 U.S.C. § 7442. The Tax Court has jurisdiction to review controversies involving an entity’s initial or continuing qualification for tax-exempt status under section 501(c)(3). 26 U.S.C. § 7428(a)(1). To invoke the Court’s jurisdiction under section 7428(a)(1), an organization must file a petition with the Court within 90 days of the mailing of the final notice of adverse determination. Id. at § 7428(b)(3); see Rule 210(c)(3). A petitioning party must have the capacity to commence and maintain litigation in the Court. See Rule 60(c); see also Brannon’s of Shawnee, Inc. v. Commissioner, 71 T.C. 108, 111 (1978). An IRS Form cannot define this Court’s jurisdiction.Capacity of Corporation Taxpayer. Rule 60(c) provides that “[t]he capacity of a corporation to engage in [Tax Court] litigation shall be determined by the law under which it was organized.” If a petitioner lacks the capacity to commence and maintain litigation in the Tax Court, it must dismiss the case for lack of jurisdiction. See Brannon’s of Shawnee, Inc., 71 T.C. at 111.California Corporations. A California corporation whose “corporate powers, rights, and privileges” have been suspended by the State of California lacks

ed the Determination that is the Basis of the Tax Court’s Jurisdiction.Historically, IRS Chief Counsel would not refer a docketed case to IRS Appeals if IRS Appeals previously reviewed the case and issued the correspondence with its determination. This, of course, made sense because IRS Appeals has rendered its final determination, and a taxpayer’s request for a second IRS Appeals hearing would be duplicative and would eat up administrative resources. Accordingly, the Proposed Regulations provide that IRS Appeals will not review any matters in which it has issued the final determination.IRS Appeals Consideration is a Prerequisite to the Tax Court’s Jurisdiction.Certain requests for relief require a taxpayer to exhaust all avenues of administrative review. For example, taxpayers are precluded from requesting judicial review of certain declaratory judgment forms of relief unless the taxpayer “has exhausted administrative remedies available to it within the Internal Revenue Service.” See I.R.C. § 7428(b)(2). If the taxpayer fails to request IRS Appeals review prior to seeking a judicial resolution, the Proposed Regulations provide that IRS Appeals will not review the matter.CPEO Certifications.Because the IRS Office of Professional Responsibility reviews the Certified Professional Employer Organization (“CPEO”) program, the Proposed Regulations provide that IRS Appeals will not review any determination to deny or revoke a CPEO certification.Conclusion. Because the Proposed Regulations are only in proposed form, tax professionals can expect some revisions and modifications to the regulations in their current form. Indeed, the notice and comment period is open until at least November 14, 2022, with a potential public hearing scheduled for November 29, 2022. Nevertheless, tax professionals should expect that most—if not all—of the exceptions mentioned in this article will find their way into final regulations. Therefore, tax professionals who routinely represent taxpayers in IRS Appeals sho

Organizations that are not exempt under section 501 generally are required to file federal income tax returns and pay tax, where applicable.An adverse IRS determination of tax exempt status may be challenged by filing a petition or complaint for declaratory judgment under I.R.C. § 7428 in the U.S. Tax Court, U.S. Court of Federal Claims or the U.S. District Court for the District of Columbia within 90 days of the date of the determination letter (here, the ruling).Insights: This ruling illustrates that a section 501(c)(3) organization, to maintain its tax exempt status, must continue to pursue its charitable activities, must properly document those activities on tax returns and in its corporate records, and is advised to cooperate with the IRS in its exercise of investigatory and audit authority over the privilege of tax exemption.For additional information on legal and tax issues facing tax-exempt and nonprofit organizations, search this Freeman Law Insights blog for topics such as:Adverse Rulings from the IRS on Tax-Exempt Entities/Nonprofits (other July 1, 2022 IRS Private Letter Rulings)Three-Part blog on Tax Exemption and Unrelated Business Income RulesCan Nonprofits Fundraise for Other Nonprofits?What is a Section 509(a)(3) Supporting Organization?