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Organizations affiliated with governmental units exempt from Form 990 filing requirements.

Reporting requirements

Sec. 6033(a)(1) generally requires the filing of annual information returns by exempt organizations, disclosing "specifically the items of gross income, receipts, and disbursements." Most exempt organizations are required to file a Form 990, Return of Organization Exempt from Income Tax.

However, Sec. 6033(a)(2) and Regs. Sec. 1.6033-2g! provide mandatory exceptions to the general reporting requirement for: * Churches, their integrated auxiliaries (including men's or women's organizations, religious schools or youth groups!, and conventions or associations of churches. * The exclusively religious activities of any religious order. * Certain organizations (other than private foundations! with annual gross receipts normally not more than $5,000 (such as religious, educational or charitable organizations; Sec. 501(c)(3) organizations connected with a religious organization; fraternal beneficiary societies, orders or associations; and certain Sec. 501c)(1) organizations!. * Mission societies sponsored by or affiliated with a church or church denomination, more than half of whose activities are conducted in, or directed at persons in, foreign countries. * Certain instrumentalities of the United States organized under Acts of Congress. * Certain educational organizations (below college level1 that have programs of a general academic nature and are affiliated with a church or operated by a religious order. * State institutions. * Any organization, determined by the Secretary of the Treasury, for which the filing is not necessary to the efficient administration of the Internal Revenue laws.

IRS announcement

In September 1994, the IRS proposed exercising the Secretary's discretionary authority under Sec. 6033(a!(2! to except from filing Form 990 any organization that is an affiliate of a governmental unit. Specifically, in Ann. 94-117, the Service provided (via a proposed revenue procedure) that exempt organizations "closely affiliated" with one or more governmental units do not need to file annual information returns. Organizations required to file other tax returns, such as the Form 990-T, Exempt Organization Business Income Tax Return, would continue to be required to file those forms. This proposed revenue procedure would supplement Rev. Proc. 83-23.

The announcement defines "affiliate of a governmental unit" and lists several factors and relevant circumstances to be considered in determining whether an organization is not required to file Form 990.

Affiliate of a governmental unit

An affiliate of a governmental unit is defined as an organization that has an outstanding ruling or determination from the IRS that it falls under one of the following: * It is entitled to receive deductible charitable contributions as a Sec. 170(c)(1) organization. * Its income, derived from exempt purpose activities, is excluded under Sec. 115. * It is an "instrumentality" of a state or a political subdivision for employment tax purposes. * It is a state or local government unit, or a political subdivision under Sec. 103.

Alternatively, an organization that has not received such a ruling or determination from the Service would be treated as an "affiliate of a governmental unit" if, based on all the relevant facts and circumstances (and factors listed in this announcement), the IRS determines that: * The organization is closely affiliated with one or more governmental units; and * The organization's filing of Form 990 is not otherwise necessary to the efficient administration of the Internal Revenue laws.

"Closely affiliated " factors

The following factors (listed in descending order of importance) will be considered in determining whether an organization is closely affiliated with a governmental unit: * The organization is financially accountable to one or more governmental units that is, it is required - it does not just volunteer - to report to governmental units (at least annually) information comparable to that required on Form 990, and is subject to financial audit by the governmental units to which it reports--not just under a government grant or other contract). * The organization is operated, supervised or controlled by governmental units * The organization's support is received principally from taxes, tolls, fines, government appropriations or fees collected under statutory authority. (Note: Government grants and other contract payments do not qualify as support.) * One or more governmental units exercise control over, or oversee, some or all of the organization's expenditures (although not financially accountable to governmental units as previously described). * The organization was created by one or more governmental units or by public officials acting in their official capacity. * If the organization is dissolved its assets will (by reason of a provision in its articles of organization or by operation of law) be distributed to one or more governmental units.

Filing is otherwise necessary to

the efficient administration of

the Internal Revenue laws

Some of the relevant facts and circumstances as to whether the filing of a Form 990 is otherwise necessary to the efficient administration of the Internal Revenue laws include: * The extent to which the organization has taxable subsidiaries, or participates in joint ventures with nonexempt entities. * Whether it engages in substantial public fund-raising efforts. * Whether its activities provide significant benefits to private interests.

Rulings and determination


As noted, an exempt organization may (but is not required to) request a ruling or determination that it is excepted as an "affiliate of a governmental unit" from the Form 990 information reporting requirements. The procedures for filing such a ruling or determination letter request are provided in Rev. Proc. 94-4.

In addition, an organization applying for exempt status may request (by separate written request submitted with its application for exemption recognition) a determination that it meets the requirements to be an affiliate of a governmental unit and, thus, is excepted from filing Form 990. (Rev. Proc. 90-27 describes the procedures for applications for exemption recognition.)

According to the proposed revenue procedure (which would be effective for tax years beginning after Dec. 31, 1969, organizations requesting rulings or determinations that they are affiliates of a governmental unit must discuss in the request the presence or absence of each of the factors listed (in situations in which no ruling or determination has been received and facts and circumstances relevant to the determination (regarding the otherwise necessary administration of the law).

Other reporting requirements

Although some organizations may be exempt from the annual filing of Form 990, they are not relieved of their duty to provide additional information to the Service (such as that relating to its exempt status or foreign operations and to file other forms such as Form 990-T for unrelated business income tax, according to Regs. Sec. 1.6033-2(h) and (i). Additionally, Regs. Sec. 1.6033-2(h)(1) provides that an organization exempt from tax and not required to file an information return annually is required to immediately notify in writing the district director for the Internal Revenue district in which it' principal office is located of an changes in its character, operations or purpose for which it was originally created.

Significance to exempt


Tax-exempt organizations that have a close relationship with governmental units (such as a city-run hospital) should consider their possible classification as an "affiliate of a governmental unit." If the Service grants a ruling or determination treating the organization as an "affiliate of a governmental unit," the organization would not have to file the annual Form 990. Although this would not relieve the organization of its recordkeeping responsibilities, it could save the organization administrative costs in the long run.
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Article Details
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Author:Snowling, Randall
Publication:The Tax Adviser
Date:Mar 1, 1995
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