Our nonprofit organization was formed more than 25 years ago. We don’t have any record of a specific recognition of exemption, but our national organization tells us we are included in a group exemption that they have obtained. How can we check that? We file our own separate tax return. A lot of things are changing at our national level. What happens if they decide to drop us, or if we decide to drop them and go on our own? —By email.
There is apparently no official way to confirm with the IRS who is included on a group exemption. You have to rely on what the group exemption holder tells you. Groups like Candid or Pro Publica sometimes list organizations they believe are included in a group exemption, but the names may be hard to find and the list may not include all of those on the list. If your national organization tells you that you are on the list, if you have been filing an annual Form 990 tax information return that has been accepted by the IRS every year, and if the IRS lists you as exempt on its website, you can be pretty sure of your status.
What happens if they drop you raises another interesting question. The Internal Revenue Service had put a hiatus on group exemption activity for about six years prior to its revised Revenue Proclamation on group exemptions in January. (Rev. Proc. 2026-8.) The order generally provides that if the “central organization” intends to drop you from the list — which they can do with or without cause — they must give you at least 30 days’ advance notice, plus a further notice when they actually notify the IRS of your removal. They also have to advise you how you can file an application for recognition of your own separate exemption.
You will have the opportunity to file a new Form 1023 application for recognition for charitable exemption (or Form 1024 or 1024A for recognition of other exemptions if you are exempt under another section of the Tax Code). If you file within 27 months of the date on which you were dropped from the group list, the exemption will be retroactive to the date you were dropped. During the interim while your application is pending, you can still file a Form 990 so you wouldn’t have to file a business tax return.
The Rev. Proc. does not discuss how you could remove yourself from the list. If you can’t negotiate with the national organization to drop you if you want to go your separate way, you can probably force them to drop you if you no longer meet the legal requirements for inclusion. You could revise your governing documents so that you no longer include a required statement of purpose or you could change your fiscal year, which, when you tell the IRS, might cause the IRS to remove you from the list. If you really want to get out, I am sure you can find a way.
Even if things are changing at the national level, I wouldn’t jump to conclusions about the need to disassociate. You are probably getting a lot of intangible benefits from the national that might not continue if you break the relationship.
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