IRS ANNOUNCES THAT CHURCH-AFFILIATED ORGANIZATIONS NEED NOT FILE FORMS 990

Rev. Proc. 86-23

SECTION 1. PURPOSE

The purpose of this revenue procedure is to supplement Rev. Proc. 83-23, 1983-1 C.B. 687, and to supersede Notice 84-2, 1984-1 C.B. 331, by establishing an additional class of organizations, affiliated with a church or convention or association of churches and exempt from federal income tax under section 501(c)(3) 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.

SEC. 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 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 "the Commissioner may relieve any organization or class of organizations from filing, in whole or in part, the annual return required by section 6033 where he 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 above in Sec. 2.03. A more complete list is contained in Rev. Proc. 83-23, 1983-1 C.B. 687.

05 Notice 84-2 contains a list of church-affiliated organizations that are excused from filing Form 990 for tax years beginning after December 31, 1975. Generally, these are organizations that carry out church-related financing, funding, and pension programs. The organizations listed in Notice 84-2 have been excused from filing under the Commissioner's discretionary authority under section 6033(a)(2)(B) of the Code.

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

SEC. 3. ORGANIZATIONS EXCUSED FROM FILING

For tax years beginning after December 31, 1975, an organization that is described in sections 501(c)(3) and 509(a)(1), (2), or (3) of the Code, that is affiliated with a church or convention or association of churches as defined in Sec. 4, and that meets the internal support requirement of Sec. 5 of this revenue procedure will not be required to file Form 990.

SEC. 4. AFFILIATED WITH A CHURCH OR CONVENTION OR ASSOCIATION OF CHURCHES

For purposes of Sec. 3, an organization is affiliated with a church or a convention or association of churches if:

1 The organization is covered by a group exemption letter under Rev. Proc. 80-27, 1980-1 C.B. 677, or subsequent revision; or

2 The organization is operated, supervised, or controlled by or in connection with, as defined in section 1.509(a)-4 of the regulations, a church or convention or association of churches; or

3 Relevant facts and circumstances show that it is so affiliated. The factors to be considered include:

(a) The organization's enabling instrument (corporate charter, trust instrument, articles of association, constitution, or similar document) or by-laws affirm that the organization shares common religious doctrines, principles, disciplines, practices with the church or convention or association of churches.

(b) The church or convention or association of churches has authority to appoint or remove or to control the appointment or removal of at least one of the organization's officers or directors.

(c) The church or convention or association of churches receives reports, at least annually, on the financial and general operations of the organization.

(d) The corporate name of the organization indicates an institutional relationship, which relationship is affirmed by the church or convention or association of churches or a designee thereof; or if the corporate name of the organization does not indicate an institutional relationship, this institutional relationship is affirmed by the church, or convention or association of churches, or designee thereof.

(e) In the event of dissolution, the assets are required to be distributed to the church or convention or association of churches or to an affiliate thereof within the meeting of this revenue procedure.

(f) Any other relevant fact or circumstance.

The absence of one or more of the above factors does not necessarily preclude classification of an organization as being affiliated with a church or convention or association of churches.

SEC. 5. INTERNAL SUPPORT REQUIREMENT

For purposes of Sec. 3, an organization is internally supported within the meaning of this section UNLESS it both:

1 Offers admissions, goods, services, or facilities for sale, other than on an incidental basis, to the general public (except goods, services, or facilities sold at a nominal charge or substantially less than cost), and

2 normally receives more than 50 percent of its support from a combination of governmental sources; public solicitation of contributions (such as through a community fund drive); and receipts from the sale of admissions, goods, performance of services, or furnishing of facilities in activities that are not unrelated trades or businesses.

SEC. 6. SPECIAL RETURN FILING PROCEDURES

Any section 501(c)(3) church-affiliated organization that failed to file a required return on Form 990 for any tax year ending on or before December 31, 1986, but which files such return or returns by May 15, 1987, on the basis of this revenue procedure, will not be subject to a late filing penalty under section 6652(d)(1) of the Code. Such return should be marked at the top, "Filed under Rev. Proc. 86-23."

SEC. 7. EFFECT ON OTHER DOCUMENTS

01 Rev. Proc. 83-23 is hereby supplemented.

02 Notice 84-2 is hereby superseded because the organizations it excuses from filing are excused from filing under this revenue procedure.