The IRS has randomly selected over 2,000 central organizations for questioning about the subordinate organizations included in their group exemptions. The IRS is sending questionnaires to these central organizations, which serve as the parent organization for a group of affiliated exempt organizations, because a significant number of subordinate organizations have suffered revocation of their tax-exempt status for failing to file IRS information returns for three consecutive years.
What You Need To Know
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A central organization is a parent organization that has obtained a group exemption ruling from the IRS for its chapters, affiliates or other subordinate organizations, which allows the subordinate organizations to rely on the group exemption ruling for recognition of their tax-exempt status.
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Subordinate organizations, to be included in the group exemption, must be properly affiliated with the central organization and be subject to its general supervision and control.
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Unless an exemption from filing applies, a central organization must file its own Form 990 and either its subordinates must file separate Forms 990 (or 990-EZ or 990-N) or the central organization may file a group return for all its subordinates.
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Due to the large number of subordinate organizations that have had their tax-exempt status revoked due to failing to file information returns for three consecutive years, the IRS is concerned that central organizations are not exercising proper oversight over their group exemption subordinates. As a result, the IRS is issuing a compliance questionnaire to more than 2,000 central organizations.
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The IRS questionnaire will ask central organizations about their group exemption rulings, including their relationships with the subordinate organizations and the manner in which the subordinates are fulfilling their Form 990 filing requirements.
What You Need To Do
If your organization is the central organization for a group exemption ruling, you should ascertain if the tax-exempt status of any subordinate organization has been revoked. If so, the subordinate should take immediate action to have its exempt status reinstated by filing an application for recognition of exemption under either IRS Notice 2011-43 (for smaller organizations) or IRS Notice 2011-44 (for larger organizations).
In addition, as a central organization, your organization should be exercising effective oversight over its subordinate organizations. This includes requiring an annual statement from each subordinate that contains:
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a statement that the subordinate has timely filed the appropriate IRS information return;
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an update to the subordinate’s name, address, and current officers and directors;
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an affirmative statement that the subordinate wishes to continue to be included in the group exemption; and
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a report on any changes in the purposes, character, or method of operation of the subordinate.
For More Information
You may contact any of the following attorneys in our Nonprofit Organizations Practice Group:
