A Group Exemption Letter is given by the IRS to a central organization that has subordinates (or chapters) so that the subordinates or chapters do not have to file for their own 501c3 tax-exempt status. We do both the application for group exemption for the central organization as well as prepare the corporate and incorporation documents for the subordinate organizations. The IRS User Fee is $3000 for a Group Exemption Letter, and our fee is $2945. Our fee for the corporate and incorporation documents is $600 for each subordinate ($900-$1200 for New York). The group exemption letter can be useful for churches that wish to have "daughter" churches under a head or principal church (denominational model).

Group exemptions are for related organizations that are very similar to each other in their structure, purposes and activities. The central organization generally supervises or controls many chapters, called subordinate organizations. An example of this would probably be the Rotary Club. To qualify for a group exemption, the central organization and its subordinates must have a defined relationship. Subordinates must be affiliated with the central organization and subject to its supervision or control.

It would appear from Rev. Proc. 80-27, 1980-1 C.B. 677 that each nonprofit needs to have at least one extant subordinate in order to apply for a group exemption. SEC. 3. DEFINITIONS, .02 says that “A central organization is an organization that has one or more subordinates under its general supervision or control.” However, in practice, the IRS prefers to seed three or four subordinates.

A subordinate that is organized and operated in a foreign country may not be included in a group exemption letter.

Although churches are not required to apply for recognition of their own status in order to be tax-exempt, under the procedures for group rulings, a church must request recognition of its own exempt status in order to be the central organization in a group ruling.

A subordinate may not be included in a group exemption letter if it is a private foundation. Such an organization should apply separately for recognition of exempt status.

All subordinates must be on the same accounting period as the central organization if they are to be included in group returns.