Associations ‘Concerned’ About Fate of Group Returns
As the IRS considers changes in longstanding group exemption procedures, an ASAE survey shows widespread worry about the impact on tax-exempt organizations.
Nearly 80 percent of respondents to a recent ASAE survey said they are “concerned” or “very concerned” about the possibility that the IRS will eliminate group tax returns and require that all chapters or affiliated organizations file their own information return.
Since last year, the IRS has been considering changes to the group exemption process for tax-exempt organizations with affiliates or chapters. The IRS Exempt Organizations office recently asked ASAE to survey its members to gauge the potential impact of changes on the tax-exempt community.
Under the group exemption procedures in place for more than 70 years, a parent organization can submit a group exemption request to the IRS and include a list of affiliates or chapters under the parent’s general control or supervision. Parent organizations holding a group exemption letter can file a group Form 990 return on behalf of subordinate organizations that elect to be included.
The IRS Advisory Committee on Tax Exempt and Government Entities (ACT) recommended in a report last year that the group exemption process be retained, but added that changes in the law and regulatory environment point to a need for greater transparency, accountability and responsibility in the tax-exempt sector.
The advisory group said group returns should be eliminated because they don’t provide the IRS, the states, or the public with adequate transparency about the activities of subordinate organizations covered by a group exemption, nor do they serve as a mechanism to promote adequate accountability by the individual subordinate organizations.
More than 120 associations that reported filing a group return responded to ASAE’s survey. More than 87 percent indicated they would need to seek help from outside practitioners to meet the new filing requirements if group returns were eliminated. Respondents reported a mean of 116 additional hours that would be required to complete separate forms for chapters/affiliates.
If group returns were eliminated, 45.3 percent of parent organizations would absorb the burden of completing the forms on behalf of their chapters or affiliates. Slightly more than 28 percent said the burden would fall to the chapter or affiliate.
Last month, the IRS began issuing questionnaires to more than 2,000 randomly selected tax-exempt organizations with chapters or affiliated groups. The agency developed the questionnaire because a significant number of subordinate organizations have recently had their tax-exempt status automatically revoked for failing to file a Form 990 for three consecutive years. The IRS is asking parent organizations to supply information about how they provide oversight to their chapters or affiliates.