IRS Announces Filing Changes For Nonprofits with Group Exemption

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What Is a Group Exemption?

The IRS sometimes recognizes a group of organizations as tax-exempt if they are affiliated with a central organization. These organizations are sometimes referred to as “umbrella organizations” because the central parent organization may provide resources and/or identity to these smaller organizations under its control. Group Exemption allows these umbrella organizations to apply for tax-exempt status as a group instead of having 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. In order to keep a group exemption ruling active, a central organization is required to submit an annual update to the Internal Revenue Service (IRS).

Understanding The IRS Group Exemption Announcement

In a recent Exempt Organizations Update, the IRS announced that as of January 1, 2019, they stopped mailing lists of parent and subsidiary accounts to central organizations (group ruling holders) for verification and return. Historically, this list, known as the "List of Parent and Subsidiary Accounts," served as a filing reminder and as a way to keep the IRS' records of the subordinates included on a group exemption accurate and up-to-date. Central nonprofit organizations that hold a group exemption must still comply with the annual reporting requirements in Section 6 of Revenue Procedure 80-27.

With these new changes, the IRS has directed central organizations to provide the IRS with a list containing only changes to names or addresses of subordinates on file, and/or subordinates to be added or deleted from the group exemption letter. If there are no additions or deletions, the central organization must submit a statement to that effect.

As noted in Revenue Procedure 80-27, the required information must be submitted at least 90 days before the close of the central organization’s annual accounting period. So, for example, a central organization with a June 30, 2019 year end would submit its update by April 1, 2019. The required information includes the names, addresses, and employer identification numbers of subordinate organizations that have terminated, disaffiliated from the group, been added to the group, or changed names or addresses. If there are no changes, the central organization must submit a statement to that effect.

Legal Services for Nonprofits With Group Exemptions

If your nonprofit organization needs legal assistance with meeting the annual reporting requirements for a group exemption ruling, please contact our law firm, Henderson, Caverly, Pum & Trytten LLP. Our attorneys are experienced in advising and guiding nonprofits with group exemptions.