The IRS can recognize a group of organizations as tax exempt if they are affiliated with a central organization. This avoids the need for each of the organizations to individually apply for exemption. A group exemption letter has the same effect as an individual exemption letter except that it applies to more than one organization.
A central organization maintains a group exemption by filing annual reports with the IRS, at least 90 days before the close of its fiscal year, confirming that the subordinates are still active and included in the group exemption. The central organization can remove or add subordinates as appropriate. Separate from this annual report, both the central organization and the subordinates also must comply with Form 990 filing requirements. The central organization may elect to file an annual group Form 990 (distinct from its own Form 990) for all subordinates covered in its exemption letter (most choose not to do so) or it may choose to have subordinates file on their own.
The group exemption has become an area of interest for the IRS in recent years. In October 2012, the IRS issued an extensive 80 question voluntary questionnaire, aimed at understanding how tax-exempt organizations that hold a group exemption ruling oversee their subordinates and comply with annual filing and disclosure requirements. The form was sent to a random selection of over 2,000 central organizations and was to be completed online.
The questionnaire focused on the following areas:
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