Group Exemptions

Tax Exempt and Government Entities Division

What is a group exemption letter? Example: X is a national, fraternal

organization exempt under Internal
The IRS sometimes recognizes a group of or- Revenue Code (“IRC”) section 501(c)(8).
ganizations as tax-exempt if they are affiliated X has several state and hundreds of
with a central organization. This avoids the local chapters that have nearly identical
need for each of the organizations to apply articles of incorporation, by-laws, pur-
for exemption individually. A group exemp- poses, and activities. As the national
tion letter has the same effect as an individual organization, X is considered the central
exemption letter except that it applies to more organization; the state and local chap-
than one organization. ters are subordinate organizations and
are covered under X’s group exemption.
What is the reason for group exemptions?
What criteria must organizations meet to
Group exemptions are an administrative
convenience for both the IRS and organiza- be included in a group exemption?
tions with many affiliated organizations. Sub- To qualify for a group exemption, the central
ordinates in a group exemption do not have organization and its subordinates must have a
to file, and the IRS does not have to process, defined relationship. Subordinates must be:
separate applications for exemption. Conse-
quently, subordinates do not receive individual Affiliated with the central organization;
exemption letters. Subject to the central organization’s gen-
eral supervision or control; and
What types of organizations can qualify Exempt under the same paragraph of
for group exemptions? IRC 501(c), though not necessarily the
paragraph under which the central orga-
Exempt organizations that have or plan to nization is exempt.
have related organizations that are very
similar to each other may apply for a group Rev. Proc. 80-27, 1980-1 C.B. 677 sets forth
exemption. additional criteria.

What are central and subordinate Must the central organization be

organizations? recognized by the IRS as tax-exempt
before the organization can obtain a
Groups of organizations with group exemption
letters have a “head” or main organization, group exemption?
referred to as a central organization. The No. A central organization may submit its re-
central organization generally supervises or quest for a group exemption at the same time
controls many chapters, called subordinate it submits its exemption application on Form
organizations. The subordinate organizations 1023 or Form 1024. Although churches are
typically have similar structures, purposes, not required to apply for recognition of their
and activities. own status in order to be tax-exempt, under
the procedures for group rulings, a church
must request recognition of its own exempt c. A detailed description of the purposes and
status in order to be the central organization activities of the subordinates including the
in a group ruling. sources of receipts and the nature of expen-
ditures;

Are there any special rules for churches? d. An affirmation by a principal officer that,
to the best of the officer’s knowledge, the
With limited exceptions, churches are subject purposes and activities of the subordinates
to the same general requirements relating to are as set forth in (b) and (c) above;
group rulings as other organizations. How-
ever, churches are not required to file annual e. A statement that each subordinate to be
updates notifying the IRS of changes in the included in the group exemption letter has
composition of the group. furnished written authorization to the central
organization;
Where does a central organization apply
f. A list of subordinates to be included in the
for exemption and submit a request for a group exemption letter to which the IRS has
group exemption? issued an outstanding ruling or determina-
tion letter relating to exemption;
A central organization sends its application for
exemption, the request for a group exemption, g. If the application for a group exemption
and the required user fee, to: letter involves IRC 501(c)(3), an affirmation
to the effect that, to the best of the officer’s
Internal Revenue Service knowledge and belief, no subordinate to be
P.O. Box 192
included in the group exemption letter is a
Covington, KY 41012-0192
private foundation as defined in IRC 509(a);

Or, if using express mail or a delivery service, h. For each subordinate that is a school claim-
ing exemption under IRC 501(c)(3), the
to:
information required by Rev. Proc. 75-50,
Internal Revenue Service
1975-2 C.B. 834 and Rev. Rul. 71-447,
201 West Rivercenter Blvd. 1971-2 C.B. 230; and
Attn: Extracting Stop 312
Covington, KY 41011 i. A list of the names, mailing addresses
(including zip code), actual addresses (if dif-
What must a request for a group ferent), and employer identification numbers
of subordinates to be included in the group
exemption contain?
exemption letter. A current directory of
subordinates may be furnished in lieu of the
The central organization submits a letter to
list if it includes the required information and
the IRS on behalf of itself and its subordi-
if the subordinates not to be included in the
nates. The letter includes: group exemption letter are identified.

a. Information verifying the existence of the

The rules for applying for a group exemption
required relationship;
are set forth in Rev. Proc. 80-27, 1980-1 C.B.
b. A sample copy of a uniform governing in-
677.
strument (such as a charter, trust indenture,
articles of association, etc.) adopted by the
subordinates;
How does the group exemption process An annotated directory of subordinates will
work? not be accepted for this purpose. If none
of these changes occurred, the central or-
Upon receipt of an application Form 1023 ganization must submit a statement to that
or 1024 and a request for group exemption, effect.
the IRS first determines whether the central
organization and the existing subordinates c. The same information about new subordi-
nates that was required in the initial re-
qualify for tax exemption. Once the IRS
quest. If a new subordinate does not differ
grants the exemption, the central organiza-
in any material respects from the subor-
tion is responsible for: (1) ensuring that its dinates included in the original request,
current subordinates continue to qualify to however, a statement to this effect may be
be exempt; (2) verifying that any new sub- submitted in lieu of detailed information.
ordinates are exempt; and (3) updating the
IRS on an annual basis of new subordinates,
subordinates no longer to be included, and
Where does a central organization
subordinates that have changed their names
or addresses. submit an annual update?

Annual updates go to the Ogden Service

What is included in an annual update? Center, Mail Stop 6271, Ogden, UT 84404-
4749. Six months before the update is due,
Annual updates must contain the following the IRS sends the central organization a list
information: of currently listed subordinates, sometimes
called List of Parent and Subsidiary Ac-
a. Information about changes in purposes, counts.
character, or method of operation of sub-
ordinates included in the group exemption
letter. What are the filing requirements
for organizations that hold group
b. Lists of : exemptions?
1. subordinates that have changed their A group exemption letter does not change
names or addresses during the year; the filing requirements for exempt organiza-
tions. The central organization and the sub-
2. subordinates no longer to be included ordinates must file Forms 990 (or 990-EZ),
in the group exemption letter because unless they meet a filing exception. If it is
they have ceased to exist, disaffiliated,
required to file an annual return, the central
or withdrawn their authorization to the
central organization; and
organization must file its own separate return
but may also file a group return on behalf of
3. subordinates to be added to the group some or all of its subordinates. If the central
exemption letter because they are organization files on behalf of some of its
newly organized or affiliated or have subordinates, rather than all, it must attach a
newly authorized the central organiza- list of the subordinates included in the return.
tion to include them.

Each list must show the names, mailing

address (including zip codes), actual ad-
dress if different, and employer identifica-
tion numbers of the affected subordinates.
How do I verify that an organization is Where can an organization get additional
included as a subordinate in a group information?
exemption ruling?
You can get more information about group
The central organization that holds a group exemptions and the group ruling process
exemption (rather than the IRS) determines from the IRS Exempt Organizations Division:
which organizations are included as sub-
ordinates under its group exemption ruling. EO Web Site [www.irs.gov/eo]
Therefore, you can verify that an organiza-
tion is a subordinate under a group exemp- Publication 557, Tax-Exempt Status for
tion ruling by consulting the official subordi- Your Organization.
nate listing approved by the central organiza-
tion or by contacting the central organization EO Customer Account Services
directly. You may use either method to
verify that an organization is a subordinate You may direct questions about group
exemptions to the IRS Tax Exempt and
under a group exemption ruling.
Government Entities Customer Account
Services at (877) 829-5500 (toll-free
How do donors verify that contributions number).
are deductible under section 170 with
respect to a subordinate organization If you prefer to write, you may write us at:
in a section 501(c)(3) group exemption
ruling? Internal Revenue Service
Exempt Organizations Determinations
Donors should consult IRS Publication 78, P.O. Box 2508

Cumulative List of Organizations described Cincinnati, OH 45201

in Section 170(c) of the Internal Revenue
Code of 1986, or obtain a copy of the group
exemption letter from the central organiza-
tion. The central organization’s listing in
Publication 78 will indicate that contributions
to its subordinate organizations covered by
the group exemption ruling are also deduct-
ible, even though most subordinate organiza-
tions are not separately listed in Publication
78 or on the EO Business Master File. Do-
nors should then verify with the central orga-
nization, 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.