H.R. 10258: Protecting the Rights of Organizations Fairly Act of 2026

This bill would change the rules the IRS must follow when examining certain tax-exempt organizations and, if warranted, revoking their tax-exempt status. In plain terms, it is designed to require more advance notice, more explanation, and more opportunity to respond before the IRS can take action against most tax-exempt groups.

What the bill would do

• It would add a new section to the tax code setting out detailed procedures for IRS examinations of tax-exempt organizations under section 501(a), except churches, which are covered under separate rules.
• The IRS could begin an examination only after providing written notice that clearly explains:
  • that the organization has been selected for examination,
  • the general subject matter and issues being reviewed,
  • the tax periods involved,
  • the name and contact information of the examiner and supervisor,
  • the organization’s rights, including the right to legal representation, and
  • an offer for a response or opening conference to try to resolve concerns.
• If the IRS wants to expand the examination to new issues not covered in the original notice, it would have to send a new written notice covering those issues first.
• Before the IRS can revoke or otherwise adversely change an organization’s tax-exempt status, the examination would have to support that outcome and the bill’s due process rules would have to be followed.

Procedural protections during the examination

• The IRS would have to keep a detailed record of the examination, including:
  • the basis for the audit,
  • each information request,
  • the organization’s responses,
  • the IRS examiner’s factual and legal analysis, and
  • the basis for any proposed determination.
• If the organization requests it, the IRS would have to provide that record within 30 days, except for privileged communications. If privileged material is the only place where certain information appears, the IRS would have to provide a summary.
• Any IRS request for documents or information would have to describe what is being sought and explain how it relates to the examination.
• The organization would have at least 30 days to respond to each request.
• If the IRS makes a request that does not meet these requirements, the organization’s failure to respond to that defective request could not be used against it as a reason to revoke tax-exempt status.

Conference and appeal rights

• If there is a dispute during the examination, the organization could request a supervisory conference. The IRS would have to acknowledge the request within 10 business days, hold the conference within 30 days unless both sides agree to more time, and provide a written summary afterward.
• If the IRS decides to move toward an adverse determination, it would have to offer a closing conference before issuing a proposed adverse determination letter.
• That closing conference would have to include a summary of the findings, the legal and factual reasons for the decision, and an explanation of appeal rights and deadlines.
• The IRS would then have to send a proposed adverse determination letter and wait at least 30 days before issuing any final adverse determination letter.
• The proposed letter would need to explain how the IRS is proposing to change the organization’s status, the basis for that decision, the proposed effective date, the protest and appeal options, deadlines, and the date on which a final letter could be issued if no protest or appeal is filed.
• The bill also specifically would allow organizations to seek review by the IRS Independent Office of Appeals if they timely request it, and would set deadlines for acknowledgment and scheduling of an appeals conference.

Changes for churches

• The bill would also update the existing rules for church tax examinations so that church notices must explain the church’s rights during an examination, including the right to counsel or another representative and the right to request a supervisory conference.
• It would also require the IRS to offer to consider a response to the notice before holding a conference.
• If the IRS expands a church examination to new records or activities, it would have to send a supplemental written notice describing those additional items first.

When it would apply

• The new rules would apply to examinations started after December 31, 2024.

Relevant Companies

None found