Tax Alert: Tax Exempt Group Rulings Under IRS Scrutiny
The IRS is asking more than 2,000 randomly selected exempt organizations with a group ruling to complete an on-line questionnaire. The purpose of the questionnaire is to assist the IRS in better understanding the relationship between central or “parent” exempt organizations and their subordinate exempt organizations and to learn how the organizations satisfy their exemption and filing requirements with respect to group rulings.
Exempt organizations with a group ruling may want to contact CohnReznick for assistance with:
- Responding to the questionnaire
- Complying with and planning for possible changes to IRS procedures for group rulings
- Preparing for possible elimination of the option to file group returns on Form 990
The questionnaire comes on the heels of a report issued in June 2011 by the IRS Advisory Committee on Tax Exempt and Government Entities (ACT). The ACT recommended that the IRS retain the group ruling procedures but eliminate the option to file group Form 990 returns. The ACT also recommended that the IRS update the procedures to:
- Provide clearer guidance on how central organizations are expected to exercise on-going general supervision or control over their subordinate organizations
- Require group ruling holders that have a Form 990 filing requirement to disclose, on Schedule O of Form 990, information about the composition of the group and how the central organization exercises general supervision or control
- Include subordinate organizations in IRS Publication 78, which is a list of organizations eligible to receive tax-deductible charitable contributions
- Prohibit Type III supporting organizations from being included in a group ruling
- Provide a significant transition period for existing groups to comply with any changes in the group ruling procedures, with special consideration given to existing church group rulings
IRS procedures for group rulings allow affiliated organizations to obtain recognition of tax-exempt status on a group basis. In general, under these procedures a central or parent organization files with the IRS an exemption application for itself and a request for a group ruling for one or more organizations (called subordinate organizations) that are affiliated with it and are subject to its general supervision or control. Subordinate organizations included in a group ruling are relieved from filing their own individual exemption application with the IRS. Central organizations (other than churches) are required to file annual updates notifying the IRS of changes in the composition of the group. For the group ruling to remain in effect, the central organization must file the annual update, maintain its exempt status, and file Form 990 if required to do so. Central organizations have the option to file a group return on Form 990 for two or more subordinate organizations that authorize the central organization to include the subordinate organizations in the group return. Subordinate organizations included in the group return are relieved from filing a separate Form 990.
Questionnaire Information and Due Date:
The IRS said that completion of the questionnaire is optional but is encouraged. The questionnaire is due 60 days after the central organization receives it with an additional 30 days if needed. The questionnaire consists of 80 questions covering a wide range of topics, including:
- Requirements for inclusion of subordinate organizations in a group ruling
- Relationship and communications between the central organization and subordinate organizations
- Services provided by the central organization to subordinate organizations
- Compliance with Form 990 and Form 990-T filing requirements
- Annual group ruling update
For more information, please visit the CohnReznick Not-for-Profit and Education Practice webpage and contact:
Thomas Lanning, Tax Partner, at firstname.lastname@example.org or 646-834-4108;
Philip Cornblatt, Tax Partner, at email@example.com or 410-783-6236; or
Phil Royalty, Director, at firstname.lastname@example.org or 916-930-5222.