Group Exemptions Related to Tax-Exempt Organizations Subject of AICPA Letter to IRS

The American Institute of CPAs (AICPA) has made four recommendations to the Internal Revenue Service (IRS) about how to improve the process for requesting and maintaining a group exemption for subordinate groups of a parent tax-exempt organization and for filing Form 990, Return of Organization Exempt from Income Tax, for the parent and on behalf of some or all of its subordinates.

“If implemented, our recommendations will improve efficiency and reduce the administrative burden on the IRS and taxpayers of maintaining a group exemption,” Annette Nellen, CPA, CGMA, Esq., chair of the AICPA Tax Executive Committee, wrote in the AICPA’s April 26 letter.

She explained that under Revenue Procedure 80-27, the parent organization, known as the “central organization,” is entitled to request group tax-exempt status for all of its affiliates, known as “subordinates.”  Additionally, the central organization can elect to file a Form 990 on a group basis on behalf of some or all of its subordinates, although the central organization is also required to file its own separate Form 990.

Each year, the central organization must update its roster of subordinate entities and provide those updates to the IRS 90 days before the end of the central organization’s accounting period, Nellen stated.   In order to effectuate this update, the IRS sends the central organization a letter noting the organizations it has listed in the IRS Exempt Organization Business Master File (EO BMF) as subordinates of the central organization and requests the central organization to make updates to that listing.

The AICPA recommended:

• That in order to provide clear guidance and formality regarding the information required in the 90-day notice, and to limit the number of errors in the EO BMF, the IRS should create a form that will afford a consistent format and process for central organizations to provide the information required;

• That the IRS update Form 990 to include a separate schedule (e.g., Schedule Q, Group Exemption Filers) to list the name and Employer Identification Number for each subordinate included in a group Form 990 filing;

• That each subordinate of a central organization’s group exemption number that is required to file a Form 990-N e-Postcard satisfies its filing requirement if the central organization updates its list of subordinates as required; and

• That the IRS allow a central organization and its subordinates the option to file one consolidated Form 990.  It is also important to retain the option for a central organization and each of its subordinates to file separate Forms 990.