Closely related nonprofit organizations can save time and money by obtaining a group exemption letter from the IRS.
The IRS allows certain closely related nonprofit organizations to file for tax exemption as a group. The group exemption letter can be used by any members of the group in the same manner an individual exemption letter would, thus saving group members time and money. National organizations with state chapters (or state organizations with local chapters) are excellent candidates for a group exemption from the IRS.
Either existing or new organizations can file for group tax exemption. In either case, they must fall under certain criteria:
- there must be a head organization, called the “central organization” by the IRS
- the central organization must exert supervision or control over the subordinate organizations
- the subordinate organizations must adopt a uniform governing instrument (such as a charter or articles of association)
- the subordinate organizations should be very similar in nature (for instance, having the same organizational structure and performing the same activities)
- all organizations must qualify as the same type of 501c (for instance, a 501c3 and 501c4 cannot apply for a group exemption number)
- the organizations involved cannot be private foundations
Page 2 of this pdf file from the IRS contains detailed instructions on obtaining a group exemption. New subordinates are covered under the pre-existing tax exemption, so long as they fit the criteria.
Once the IRS has issued a group tax exemption letter, the central organization must provide an annual report containing:
- Any changes in the purpose or operating methods of the subordinates.
- Any changes to the list of subordinates (including change of names or addresses, new subordinates, or subordinates to be no longer included)
While a group tax exemption number decreases the amount of paperwork required, it does not change the filing requirements of nonprofit organizations. The central organization and all subordinates must still get a seperate Employer Identification Number (EIN) and file Form 990 if required by law.
