Group Exemption

UPDATE (6/16/20): IRS Notice 2020-36

This notice contains a proposed revenue procedure that sets forth updated procedures under which recognition of exemption from federal income tax for organizations described in Ā§ 501(c) of the Internal Revenue Code (Code) may be obtained on a group basis for subordinate organizations affiliated with and under the general supervision or control of a central organization. The proposed revenue procedure also sets forth updated procedures a central organization must follow to maintain a group exemption letter. The proposed revenue procedure would modify and supersede Rev. Proc. 80-27, 1980-1 C.B. 677 (as modified by Rev. Proc. 96-40, 1996-2 C.B. 301). The Internal Revenue Service (IRS) is issuing this guidance in proposed form to provide an opportunity for public comment because the IRS recognizes that, if finalized, the proposed revenue procedure would make substantial changes to the procedures set forth in Rev. Proc. 80-27 and that the application of these new procedures may impose an additional administrative burden on central organizations with group exemption letters in existence on the date the final revenue procedure is published in the Internal Revenue Bulletin (preexisting group exemption letters).

Pending publication of the final revenue procedure in the Internal Revenue Bulletin, Rev. Proc. 80-27 continues to apply. However, the IRS will not accept any requests for group exemption letters beginning June 17, 2020, until publication of the final revenue procedure or other guidance.

Original Post (2007)

IRS Publication 4573 (12-2006) provides guidance on group exemptions.  A group exemption letter may be granted by the IRS in response to an application for group exemption by a central organization on behalf of itself and one or more subordinate organizations (e.g., chapters).  To qualify for a group exemption, the central organization and its subordinates must have a defined relationship where the subordinates are:

  • Affiliated with the central organization;
  • Subject to the central organization’s general supervision or control; and
  • Exempt under the same paragraph of IRC Section 501(c), though not necessarily under the same paragraph under which the central organization is exempt.

Evidence of the above requirements will be included with the group exemption application, including:

  • A letter containing information verifying the existence of the required relationship;
  • A sample copy of a uniform governing instrument adopted by the subordinates;
  • An affirmation by a principal officer of the central organization that, to the best of such officer’s knowledge, the purposes and activities of the subordinates are set forth and consistent with the uniform governing instrument;
  • A statement that each subordinate to be included in the group exemption letter has furnished written authorization to the central organization; and
  • If the application for group exemption 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.

Once the group exemption letter is granted, the central organization is responsible for:

  1. Ensuring that its current subordinates continue to qualify to be exempt;
  2. Verifying that any new subordinates are exempt;
  3. Updating the IRS on an annual basis of any changes in purposes, character, or methods of operation of included subordinates; new subordinates; subordinates no longer to be included; and subordinates that have changed their names or addresses.

Click here for Publication 4573.

Click here for Rev. Proc. 80-27 to find more detailed information about obtaining group exemption.