IRS proposal regarding group exemptions

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FROM GCFA’s LEGAL SERVICES DEPARTMENT – UMC Group Ruling Update

In May 2020, the IRS released proposed updates to the rules for group exemptions. These proposed updates would make several changes that could negatively impact our denomination’s group exemption, including:

  • A requirement that all subordinate organizations adopt a “uniform governing instrument;”
  • Specific definitions for the “general supervision” or “control” that the central organization must exercise over all subordinates; and
  • A requirement that all subordinates must fall under the same subsection of Section 509(a) of the Tax Code (this would limit the types of ministries that could be included in the group exemption).

Fortunately, most of the problematic changes would not apply to organizations already included in our group exemption. Any changes included in the final version of the rules would only impact new applicants.

It’s important to understand these are currently only proposed changes. The release of the proposed rules was followed by a public comment period, which closed on August 16. GCFA’s Legal Services Department worked in cooperation with in-house counsel at several other denominations to submit a comment letter focusing on how the proposed changes would improperly hamper religious-based group exemptions. And while it is impossible to know what modifications, if any, the IRS will make in response to the comments it receives, we are hopeful the IRS will abandon some of the proposals that would place substantial administrative burdens on central organizations and/or unreasonably limit the ability to include new subordinate organizations. Although the expectation is it will be several months until the IRS publishes the final version of the rules, we cannot say with any certainty how long it will be before the new rules become effective.

Because of these uncertainties, we strongly encourage any United Methodist organization that wants to apply for inclusion in the group exemption to do so as soon as possible. This will allow us to process the application under the current group exemption rules (which remain in effect until the IRS releases the final version of the new rules).  To apply:

  • Visit UMgroupruling.org.
  • Churches, districts, and annual conferences can typically utilize the website’s automated process to receive an inclusion letter in 10 minutes or less.
  • United Methodist organizations connected to churches, districts, and annual conferences should use the form provided on the website, or send an email to legal@gcfa.org, to start the application process.
    • Examples include foundations, daycares, preschools, food pantries, camps and retreat centers, etc.
    • Because the eligibility requirements for such organizations are more detailed, processing of these applications takes more time, and could result in the applicant making changes to its organizing documents before inclusion can be finalized. Thus, it is especially important that such applicants contact us as soon as possible.

Please contact us via legal@gcfa.org if you have any questions.