The IRS sometimes recognizes a group of organizations as tax-exempt if they
are affiliated with a central organization. This avoids the need for each of
the organizations to apply for exemption individually. A group exemption
letter has the same effect as an individual exemption letter except that it
applies to more than one organization.
What is the reason for group exemptions?
Group exemptions are an administrative convenience for both the IRS and
organizations with many affiliated organizations. Subordinates in a group
exemption do not have
to file, and the IRS does not have to process, separate applications for
exemption. Consequently, subordinates do not receive individual exemption
letters.
What types of organizations can qualify for group exemptions?
Exempt organizations that have or plan to have related organizations that
are very similar to each other may apply for a group exemption.
What are central and subordinate organizations?
Groups of organizations with group exemption letters have a “head” or main
organization, referred to as a central organization. The central
organization generally supervises or controls many chapters, called
subordinate organizations. The subordinate organizations typically have
similar structures, purposes,and activities.
Example: X is a national, fraternal organization exempt under Internal
Revenue Code (“IRC”) section 501(c)(8). X has several state and hundreds of
local chapters that have nearly identical articles of incorporation,
by-laws, purposes, and activities. As the national organization, X is
considered the central organization; the state and local chapters are
subordinate organizations and are covered under X’s group exemption.
What criteria must organizations meet to be included in a group
exemption?
To qualify for a group exemption, the central organization and its
subordinates must have a defined relationship. Subordinates must be:
Affiliated with the central organization; Subject to the central
organization’s general supervision or control; and Exempt under the same
paragraph of IRC 501(c), though not necessarily the paragraph under which
the central organization is exempt.
Must the central organization be recognized by the
IRS as tax-exempt before the organization can obtain a group exemption?
No. A central organization may submit its request for a group exemption at
the same time it submits its exemption application on Form 1023 or Form
1024. Although churches are not required to apply for recognition of their
own status in order to be tax-exempt, under the procedures for group
rulings, a church must request recognition of its own exempt status in order
to be the central organization in a group ruling.
Are there any special rules for churches?
With limited exceptions, churches are subject to the same general
requirements relating to group rulings as other organizations. However,
churches are not required to file annual updates notifying the IRS of
changes in the composition of the group.
Where does a central organization apply for exemption and submit a
request for a group exemption?
A central organization sends its application for exemption, the request for
a group exemption, and the required user fee, to:
Internal Revenue Service
P.O. Box 192
Covington, KY 41012-0192
Or, if using express mail or a delivery service, to:
Internal Revenue Service
201 West Rivercenter Blvd.
Attn: Extracting Stop 312
Covington, KY 41011
What must a request for a group exemption contain?
The central organization submits a letter to the IRS on behalf of itself and
its subordinates. The letter includes:
a. Information verifying the existence of the required relationship;
b. A sample copy of a uniform governing instrument (such as a charter, trust
indenture, articles of association, etc.) adopted by the subordinates;
c. A detailed description of the purposes and activities of the
subordinates including the sources of receipts and the nature of
expenditures;
d. An affirmation by a principal officer that, to the best of the officer’s
knowledge, the purposes and activities of the subordinates are as set forth
in (b) and (c) above;
e. A statement that each subordinate to be included in the group exemption
letter has furnished written authorization to the central organization;
f. A list of subordinates to be included in the group exemption letter to
which the IRS has issued an outstanding ruling or determination letter
relating to exemption;
g. If the application for a group exemption letter involves IRC 501(c)(3),
an affirmation to the effect that, to the best of the officer’s knowledge
and belief, no subordinate to be included in the group exemption letter is a
private foundation as defined in IRC 509(a);
h. For each subordinate that is a school claiming exemption under IRC
501(c)(3), the information required by Rev. Proc. 75-50, 1975-2 C.B. 834 and
Rev. Rul. 71-447,
1971-2 C.B. 230; and
i. A list of the names, mailing addresses (including zip code), actual
addresses (if different), and employer identification numbers of
subordinates to be included in the group exemption letter. A current
directory of subordinates may be furnished in lieu of the list if it
includes the required information and if the subordinates not to be included
in the group exemption letter are identified.
The rules for applying for a group exemption
are set forth in Rev. Proc. 80-27, 1980-1 C.B. 677.
How does the group exemption process work?
Upon receipt of an application Form 1023 or 1024 and a request for group
exemption, the IRS first determines whether the central organization and the
existing subordinates qualify for tax exemption. Once the IRS grants the
exemption, the central organization is responsible for: (1) ensuring that
its current subordinates continue to qualify to be exempt; (2) verifying
that any new sub- ordinates are exempt; and (3) updating the
IRS on an annual basis of new subordinates, subordinates no longer to be
included, and subordinates that have changed their names or addresses.
What is included in an annual update?
Annual updates must contain the following information:
a. Information about changes in purposes, character, or method of operation
of sub- ordinates included in the group exemption letter.
b. Lists of :
1. subordinates that have changed their names or addresses during the year;
2. subordinates no longer to be included in the group exemption letter
because they have ceased to exist, disaffiliated, or withdrawn their
authorization to the central organization; and
3. subordinates to be added to the group exemption letter because they are
newly organized or affiliated or have newly authorized the central
organization to include them.
Each list must show the names, mailing address (including zip codes), actual
address if different, and employer identification numbers of the affected
subordinates.
An annotated directory of subordinates will not be accepted for this
purpose. If none of these changes occurred, the central organization must
submit a statement to that effect.
c. The same information about new subordinates that was required in the
initial request. If a new subordinate does not differ in any material
respects from the subordinates included in the original request, however, a
statement to this effect may be submitted in lieu of detailed information.
Where does a central organization submit an annual update?
Annual updates go to:
Ogden Service Center
Mail Stop 6271
Ogden, UT 84404-4749.
Six months before the update is due, the IRS sends the central organization
a list of currently listed subordinates, sometimes called List of Parent and
Subsidiary Accounts.
What are the filing requirements for organizations that hold group
exemptions?
A group exemption letter does not change the filing requirements for exempt
organizations. The central organization and the sub- ordinates must file
Forms 990 (or 990-EZ), unless they meet a filing exception. If it is
required to file an annual return, the central organization must file its
own separate return but may also file a group return on behalf of some or
all of its subordinates. If the central organization files on behalf of some
of its subordinates, rather than all, it must attach a list of the
subordinates included in the return.
How do I verify that an organization is included as a subordinate in a
group exemption ruling?
The central organization that holds a group exemption (rather than the IRS)
determines which organizations are included as subordinates under its group
exemption ruling. Therefore, you can verify that an organization is a
subordinate under a group exemption ruling by consulting the official
subordinate listing approved by the central organization or by contacting
the central organization directly. You may use either method to
verify that an organization is a subordinate under a group exemption ruling.
How do donors verify that contributions are deductible under section 170
with respect to a subordinate organization in a section 501(c)(3) group
exemption ruling?
Donors should consult IRS Publication 78, Cumulative List of Organizations
described in Section 170(c) of the Internal Revenue Code of 1986, or obtain
a copy of the group exemption letter from the central organization. The
central organization’s listing in Publication 78 will indicate that
contributions to its subordinate organizations covered by the group
exemption ruling are also deductible, even though most subordinate
organizations are not separately listed in Publication 78 or on the EO
Business Master File. Donors should then verify with the central
organization, by either of the methods indicated above, whether the
particular subordinate is included in the central organization’s group
ruling. The subordinate organization need not itself be listed in
Publication 78 or on the EO Business Master File. Donors may rely upon
central organization verification with respect to deductibility of
contributions to subordinates covered in a section 501(c)(3) group exemption
ruling.
Where can an organization get additional information?
You can get more information about group exemptions and the group ruling
process from the IRS Exempt Organizations Division:
EO
Web
Site
www.irs.gov/eo
You may direct questions about group exemptions to the IRS Tax Exempt and
Government Entities Customer Account Services at (877) 829-5500 (toll-free
number).
If you prefer to write, you may write:
