Q&A #150 – Can a nonprofit change its mission without IRS approval?
Question: I am the CEO of a 501(c)(3) organization that is considering expanding our mission to include a new charitable program area that was not described in our Form 1023 application. Do we need some form of IRS approval before changing our mission and is it a problem to expand to new program areas that were not described in our Form 1023?
Answer: A 501(c)(3) public charity is generally permitted to change its mission and purpose and undertake new program areas that were not described in its Form 1023 application so long as these changes are consistent with 501(c)(3) status and properly disclosed in the organization’s Form 990. Advance IRS approval is not required, although significant changes in mission, purpose, and programs can affect an organization’s ability to rely on the IRS determination letter approving 501(c)(3) status.
It is very common for tax-exempt organizations to evolve over time. This can include, for example, developing new programs to respond to the changing needs of the organization’s constituents and beneficiaries and/or modifying the organization’s mission statement to adapt to evolving economic and social conditions. It is neither expected nor feasible for an organization to describe in its initial Form 1023 application every possible program or mission focus that the organization may pursue in the future.
However, mission and program changes come with some risk and uncertainty. The further an organization departs from the initial vision presented in its Form 1023 application, the less protection the organization gets from the IRS determination letter approving 501(c)(3) status. As stated in the applicable Treasury Regulations:
“A ruling or determination letter recognizing exemption may not be relied upon if there is a material change inconsistent with exemption in the character, the purpose, or the method of operation of the organization.” Treas. Reg. § 601.201(n)(3)(ii). See also Treas. Reg. § 1.501(a)-1(a)(2) and IRS Rev. Proc. 2023-5, Section 11.
This does not mean that an organization’s 501(c)(3) approval letter is automatically invalidated by changes in its “character,” “purpose,” or the “method of operation.” Rather, the IRS is not required to honor an organization’s 501(c)(3) approval letter if these changes are material and inconsistent with 501(c)(3) status.
For practical purposes, this means that an organization needs to be sure that any changes in mission, purpose, and programs are still consistent with the requirements of the organization’s tax-exemption classification in order to withstand IRS scrutiny in the event of an IRS audit. Of course, any such changes must also be consistent with the organization’s Articles of Incorporation and Bylaws and should be timely reported on the organization’s Form 990 (see e.g., Part I, line 1 and Part III, lines 1, 2 and 3).
Planning Tip – A change in an organization’s mission is a great opportunity to take a fresh look at how the organization describes its mission in the relevant sections of the Form 990: Part I, line 1, Part III, lines 1; and Schedule O. As detailed in this 5-minute lesson, make sure to craft separate wording appropriate to fit in the varying space provided in these sections of the Form 990 to take full advantage of the opportunity to tell your organization’s story in a way that is complete, confident, and compelling.
Tax-exempt organizations that desire maximum assurance that their tax-exempt status will not be jeopardized by significant changes may want to explore seeking a private letter ruling from the IRS (there is no process for submitting a new Form 1023 due to a change in mission or programs). However, this advance approval from the IRS is not required. Many organizations are comfortable making changes to their mission, purpose, and programs based on the advice of their attorneys, accountants, and other advisors, provided the changes are properly and timely disclosed on their Form 990.
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