IRS CONSIDERING EXCEPTING GOVERNMENT-AFFILIATED EXEMPTS FROM FORM 990 FILING REQUIREMENTS.

Announcement 94-117

This announcement issues, in proposed form, a revenue procedure that would exercise the discretionary authority under section 6033 of the Internal Revenue Code to except certain organizations that are closely affiliated with governmental units from the requirement to file annual information returns (Form 990). This revenue procedure is being issued in proposed form to permit public comment on its provisions.

Section 6033(a)(1) of the Code generally requires the filing of annual information returns by exempt organizations. The annual information return required of most organizations is Form 990, Return of Organization Exempt from Income Tax. Section 6033(a)(2)(B) of the Code provides discretionary authority to except organizations from filing such returns where the Secretary "determines that such filing is not necessary to the efficient administration of the internal revenue laws." Section 1.6033-2(g)(6) of the Income Tax Regulations delegates this authority to the Commissioner.

The attached proposed revenue procedure would exercise the Commissioner's discretionary authority under section 6033(a)(2)(B) of the Code to except from filing Form 990 any organization which is an "affiliate of a governmental unit." Organizations that are required to file Form 990-T, Exempt Organization Business Income Tax Return, would continue to file Form 990-T, even though they were not required to file Form 990.

Under section 4.01 of the proposed revenue procedure, an organization that has a ruling or determination letter from the Service which determines its status for certain other purposes of the Code (section 170(c)(1), 115, 3121(b)(7), 3306(c)(7), or 103) would be an "affiliate of a governmental unit." Under section 4.02, an organization that does not have such a letter would nevertheless qualify as an "affiliate of a governmental unit" if the Service determined, based on all relevant facts and circumstances, that (1) the organization was closely affiliated with one or more governmental units, and (2) the organization's filing of Form 990 was not otherwise necessary to the efficient administration of the internal revenue laws.

Section 4.03 provides a list of factors that would be considered (along with other relevant facts and circumstances) in deciding whether the organization was closely affiliated with one or more governmental units. Section 4.04 provides a list of factors that would be considered (along with other relevant facts and circumstances) in deciding whether the organization's filing of Form 990 was otherwise necessary to the efficient administration of the internal revenue laws.

Section 5 describes the procedures by which an organization could (but would not be required to) request a ruling that it was an "affiliate of a governmental unit," and therefore not required to file Form 990.

The exercise of the Commissioner's authority under section 6033(a)(2)(B) in this proposed revenue procedure would be effective for tax years beginning after December 31, 1969.

A significant number of organizations will be excepted from filing returns if the proposed revenue procedure is published in final form. If these organizations do not file returns, those returns would not be available for public inspection under section 6104(b) and (e)(1) of the Code. The Service has determined, on a tentative basis, that securing returns from such organizations is not "necessary to the efficient administration of the internal revenue laws," for two principal reasons: (1) the relationship of the organizations described in the proposed revenue procedure with governmental units, and (2) the application, in many cases, of state Freedom of Information Act laws. In addition, excepting these organizations from filing Form 990 would be consistent with the purposes underlying section 1.6033-2(g)(1)(v) of the regulations, which currently excepts from filing "[a] State institution, the income of which is excluded from gross income under section 115(a)" [now section 115(1)] of the Code.

Proposed Revenue Procedure

SECTION 1. PURPOSE

The purpose of this revenue procedure is to supplement Rev. Proc. 83-23, 1983-1 C.B. 687, by establishing an additional class of organizations, affiliates of governmental units which are exempt from federal income tax under section 501(a) of the Internal Revenue Code, that is not required to file an annual information return on Form 990, Return of Organization Exempt From Income Tax.

SECTION 2. BACKGROUND

.01 Section 6033(a)(1) of the Code generally requires the filing of annual information returns by exempt organizations.

.02 Section 6033(a)(2)(A) of the Code provides certain mandatory exceptions to this filing requirement.

.03 In addition, section 6033(a)(2)(B) of the Code provides discretionary exceptions from filing such returns where the Secretary "determines that such filing is not necessary to the efficient administration of the internal revenue laws." Section 1.6033-2(g)(6) of the Income Tax Regulations delegates authority to the Commissioner to excuse organizations from the filing requirement. It provides that "[t]he Commissioner may relieve any organization or class of organizations from filing, in whole or in part, the annual return required by [section 6033] where [the Commissioner] determines that such returns are not necessary for the efficient administration of the internal revenue laws."

.04 Section 1.6033-2(g)(1) of the regulations provides a partial list of organizations that are not required to file annual returns either because they are excepted by statute or because the Commissioner has exercised the authority referred to in Section 2.03. Rev. Proc. 83-23 provides a more complete list. Rev. Proc. 86-23, 1986-1 C.B. 564, which supplements Rev. Proc. 83-23, adds certain church-affiliated organizations to the list of organizations not required to file.

.05 Included among classes of organizations excepted from filing is "[a] State institution, the income of which is excluded from gross income under section 115(a)" of the Code, which is excepted under section 1.6033-2(g)(1)(v) of the regulations and listed in section 3.01(7) of Rev. Proc. 83-23. In addition, organizations described in section 501(c)(1) of the Code (certain organizations exempt from tax by Act of Congress) are excepted from filing by section 1.6033- 2(g)(1)(vi) of the regulations, and listed in section 3.01(8) of Rev. Proc. 83-23.

.06 From time to time, the Commissioner may excuse organizations from filing Form 990 returns by publishing an announcement in the Internal Revenue Bulletin, by revising the instructions accompanying Form 990, by amending the regulations, or by other appropriate publication.

SECTION 3. ORGANIZATIONS EXCEPTED FROM FILING

.01 For tax years beginning after December 31, 1969, an organization that is described in section 501(c) of the Code, that is an "affiliate of a governmental unit" within the meaning of section 4, will not be required to file Form 990. For purposes of this section, (a) "governmental unit" means an organization described in section 170(c)(1) of the Code; and (b) for purposes of (a) above, an Indian tribal government as defined in section 7701(a)(40) of the Code will be treated as a state by reason of section 7871(a)(1)(A).

.02 Organizations which are required to file Form 990-T, Exempt Organization Business Income Tax Return, must continue to file Form 990-T, even though they are not required to file Form 990.

.03 The term "affiliate of a governmental unit" used in this revenue procedure refers only to a class of organizations that are not required to file Form 990.

SECTION 4. DEFINITION - "AFFILIATE OF A GOVERNMENTAL UNIT"

.01 An organization will be treated as an "affiliate of a governmental unit" if it has an outstanding ruling or determination from the Service that:

- 1 It is entitled to receive deductible charitable contributions as an organization described in section 170(c)(1) of the Code (including a ruling that it is described in section 170(b)(1)(A)(v));

- 2 Its income, derived from activities constituting the basis for its exemption under section 501(c) of the Code, is excluded from gross income under section 115;

- 3 It is an "instrumentality" of a state or a political subdivision thereof, for employment tax purposes (see sections 3121(b)(7) and 3306(c)(7) of the Code); or

- 4 It is a state or local governmental unit, or a political subdivision thereof, under section 103 of the Code (see section 1.103-1(b) of the regulations).

.02 An organization that has not received a ruling or determination described in section 4.01 is an "affiliate of a governmental unit" if the Service determines, based on all relevant facts and circumstances, that--

- 1 the organization is closely affiliated with one or more governmental units; and

- 2 the organization's filing of Form 990 is not otherwise necessary to the efficient administration of the internal revenue laws.

.03 In making a determination as to whether an organization is closely affiliated with a governmental unit, within the meaning of section 4.02, the following factors (listed in descending order of importance) will be considered, along with any other facts and circumstances indicating whether the organization is closely affiliated with one or more governmental units.

- 1 The organization is financially accountable to one or more governmental units. This characteristic is present if the organization is (a) required to report to governmental unit(s), at least annually, information comparable to that required by Form 990; and (b) is subject to financial audit by the governmental unit(s) to which it reports. A report submitted voluntarily by the organization does not satisfy clause (a). Also, reports and audits pursuant to government grant or other contract do not alone satisfy clause (b).

- 2 The organization is "operated, supervised, or controlled by" governmental unit(s), within the meaning of section 1.509(a)- 4(g)(1)(i) of the regulations.

- 3 The organization's support is received principally from taxes, tolls, fines, government appropriations, or fees collected pursuant to statutory authority. Amounts received as government grants or other contract payments are not qualifying support under this paragraph.

- 4 One or more governmental units exercise control over, or oversee, some or all of the organization's expenditures (although it is not financially accountable to governmental units as described in paragraph 1 of this section).

- 5 The organization was created by one or more governmental units, or public officials acting in their official capacity.

- 6 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. See section 1.501(c)(3)-1(b)(4) of the Income Tax Regulations.

.04 In making a ruling or determination as to whether the organization's filing of Form 990 is otherwise necessary to the efficient administration of the internal revenue laws, under section 4.02, all relevant facts and circumstances shall be considered. Relevant facts and circumstances include, for example, the extent to which the organization has taxable subsidiaries, or participates in joint ventures with non-exempt entities; whether it engages in substantial public fund-raising efforts; and whether its activities provide significant benefits to private interests.

SECTION 5. RULINGS AND DETERMINATION LETTERS

.01 An organization that has been recognized as exempt under section 501 of the Code may (but is not required to) request a ruling or determination that it meets the requirements to be excepted from filing Form 990 as an "affiliate of a governmental unit." The request for a ruling or determination letter must be submitted under the procedures in Rev. Proc. 94-4, 1994-1 I.R.B. 90.

.02 An organization seeking recognition of exempt status under section 501 of the Code may request a determination that it meets the requirements to be excepted from filing Form 990 as an "affiliate of a governmental unit," by separate written request submitted with its application for recognition of exemption. See Rev. Proc. 90-27, 1990-1 C.B. 514, for additional procedures with regard to applications for recognition of exemption.

.03 Where section 4.02 provides the basis for an organization's request for a ruling or determination that it is an "affiliate of a governmental unit," the request must discuss the presence or absence of each of the factors listed in section 4.03, as well as facts and circumstances relevant to a determination under section 4.04.

SECTION 6. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 83-23 is hereby supplemented.

COMMENTS

The Service invites comments with respect to this proposed guidance. Comments should be submitted in writing, referencing Announcement 94-117, and addressed to:

     Assistant Commissioner

For further information contact Amy Henchey at 202-622-8100 (not a toll-free number).