The School Factory is currently investigating the potential benefits and expenditures for obtaining a non-profit status group exemption for its Space Federation members. The idea would be that Space Federation members would review requirements for joining the group exemption and decide whether or not they want to be a part of it.
The main benefit of a group exemption to the Space Federation members is that the School Factory would no longer need to function as an intermediary between the space and its donors. Spaces would be able to directly accept donations for themselves without having to deduct the 10% fee to The School Factory to support their administrative processing behind the scenes. However, in order to cover administrative expenses associated with maintaining the group exemption, an annual fee would be established for each participating member. (We anticipate this cost being less than 10% of annual donations received under current fiscal sponsorship model.)
To qualify for a group exemption, the central organization (School Factory) and its subordinates (Space Federation members) must have a defined relationship. In exchange for opting to join the group exemption, Space Federation (SF) members will need to comply with the following terms:
- SF members must have its own employer identification number (EIN), even if it has no employees.
- Subordinates must:
- Be affiliated with the central organization (Already accomplished by being a part of the Space Federation)
- Be exempt under the same paragraph of IRC 501(c) (Already accomplished since Space Federation members are already using School Factory's 501(c)3 exempt status)
- Be subject to the central organization’s general supervision or control
- Space Federation member agrees to operate their business on the same fiscal year as the School Factory (fiscal year = calendar year)
- School Factory would create Articles of Association (general rules of operation) that the Space Federation member would have to agree to/sign off on
- Submit written authorization to The School Factory that they wish to be included in the group exemption and that they are willing and able to comply with all group exemption requirements as listed above
Frequently Asked Questions:
What is the process for the School Factory to apply for group exemption status?
- The School Factory must send a letter-based request for a group exemption on its behalf and that of its subordinates, as well as any required user fee, to:
Internal Revenue Service
P.O. Box 192
Covington, KY 41012-0192
- The letter must contain the following:
- Information verifying the existence of the required relationship (Simply a statement by the School Factory)
- A sample copy of a uniform governing instrument (such as a charter, trust indenture, articles of association, etc.) adopted by the subordinates
- A detailed description of the purposes and activities of the subordinates
- including the sources of receipts and the nature of expenditures
- An affirmation by a principal officer (James Carlson) that, to the best of the officer’s knowledge, the purposes and activities of the subordinates are as set forth in bullet above
- A statement that each subordinate to be included in the group exemption letter has furnished written authorization to the central organization
- A list of subordinates to be included in the group exemption letter to which the IRS has issued an outstanding ruling or determination letter relating to exemption
- Note: No private foundations may be included in the group exemption
- Note: members that are designated as a school are subject to additional requirements
- A list of the names, mailing addresses (including zip code), actual addresses (if different), and employer identification numbers of subordinates to be included in the group exemption letter.
- A current directory of subordinates may be furnished in lieu of the list if it includes the required information and if the subordinates not to be included in the group exemption letter are identified.
Is there any fee associated with a request for group exemption?
- There doesn't seem to be any fee required for the request for group exemption, but I may not have found anything yet.
How does the IRS process group exemption requests?
- Upon receipt of a request for group exemption, the IRS first determines whether the central organization and the existing subordinates qualify for tax exemption.
- Once the IRS grants the exemption, the central organization is responsible for:
- (1) ensuring that its current subordinates continue to qualify to be exempt;
- (2) verifying that any new subordinates are exempt; and
- (3) updating the IRS on an annual basis of new subordinates, subordinates no longer to be included, and subordinates that have changed their names or addresses.
What is included in an annual update?
- Annual updates must contain the following information:
- Information about changes in purposes, character, or method of operation of subordinates included in the group exemption letter.
- Lists of :
- subordinates that have changed their names or addresses during the year;
- subordinates no longer to be included in the group exemption letter because they have ceased to exist, disaffiliated, or withdrawn their authorization to the central organization; and
- subordinates to be added to the group exemption letter because they are newly organized or affiliated or have newly authorized the central organization to include them.
- Each list must show the names, mailing address (including zip codes), actual address if different, and employer identification numbers of the affected subordinates.
- An annotated directory of subordinates will not be accepted for this purpose.
- If none of these changes occurred, the central organization must submit a statement to that effect.
- The same information about new subordinates that was required in the initial request.
- If a new subordinate does not differ in any material respects from the subordinates included in the original request, however, a statement to this effect may be submitted in lieu of detailed information.
Where does a central organization submit an annual update?
- Annual updates go to the
Ogden Service Center
Mail Stop 6271
Ogden, UT 84404-4749.
- Six months before the update is due, the IRS sends the central organization a list of currently listed subordinates, sometimes called List of Parent and Subsidiary Accounts.
What are the tax filing requirements for organizations that hold group exemptions?
- A group exemption letter does not change the filing requirements for exempt organizations.
- The central organization and the subordinates must file Forms 990 (or 990-EZ), unless they meet a filing exception.
- If it is required to file an annual return, the central organization must file its own separate return but may also file a group return on behalf of some or all of its subordinates.
- If the central organization files on behalf of some of its subordinates, rather than all, it must attach a list of the subordinates included in the return.
Where can an organization get additional information?
You may direct questions about group exemptions to the IRS Tax Exempt and Government Entities Customer Account
Services at (877) 829-5500 (toll-free number).
Additional topics related to tax exemption status & group exemption status can be found at: http://www.irs.gov/charities/content/0,,id=96986,00.html