Rev. Proc. 80-27 does — Internal Revenue Bulletin 2020-21

application of § 7428 to either central organizations or subordinate organizations. Nevertheless, questions exist regarding how the statute applies in the context of group exemption letters. Accordingly, section 11 of the proposed revenue procedure explains when § 7428 applies in the group exemption letter context. With respect to a central organization, section 11.02 of the proposed revenue procedure clarifies that section 10.02 of Rev. Proc. 2020-5 (or its successor) describes when § 7428 applies. With respect to subordinate organizations, section 11.03 of the proposed revenue procedure describes the limited circumstances in which § 7428 applies.

Section 11.03(1) of the proposed revenue procedure explains that § 7428 applies to a final determination by the IRS that a subordinate organization is no longer described in § 501(c) and therefore is not exempt under § 501(a). Such a determination occurs when the IRS terminates a group exemption letter with respect to a particular subordinate organization under section 8.02(1)(b)(i) of the proposed revenue procedure. Section 11.03(2) of the proposed revenue procedure explains that § 7428 also applies to a final determination by the IRS that a subordinate organization was not eligible for initial inclusion in or subsequent addition to a group exemption letter under section 3.04 of the proposed revenue procedure (other than under section 3.04(5) of the proposed revenue procedure regarding automatic revocation). Such a determination occurs when the IRS terminates a group exemption letter with respect to a particular subordinate organization under section 8.02(1)(b)(ii) of the proposed revenue procedure. Section 11.04 of the proposed revenue procedure explains that § 7428 does not apply to cer

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tain other actions the IRS may take, such as not accepting a group exemption letter request for a reason described in section 4.02 of the proposed revenue procedure or declining to issue a group exemption letter for a reason described in section 4.03 of the proposed revenue procedure.

Section 11.05 of the proposed revenue procedure explains that a subordinate organization must file the declaratory judgment action under § 7428 with respect to a determination affecting its own initial or continuing qualification or classification; the central organization may not file the declaratory judgment action under § 7428 on behalf of the subordinate organization. Similarly, a subordinate organization may not file a declaratory judgment action under § 7428 on behalf of its central organization.

Applicability

The proposed revenue procedure will apply to group exemption letters requested and issued after the date the final revenue procedure is published in the Internal Revenue Bulletin and to preexisting group exemption letters (see sections 14.01 and 14.02 of the proposed revenue procedure). However, section 14.02(2)(a) of the proposed revenue procedure provides that the requirements that a central organization have at least one subordinate organization to maintain a group exemption letter (see section 3.01(2) of the proposed revenue procedure) and that the central organization maintain only one group exemption letter (see section 3.01(3) of the proposed revenue procedure) will apply after a one year transition period. Section 14.02(2)(b) of the proposed revenue procedure directs a central organization with a preexisting group exemption letter, but no preexisting subordinate organizations, to add at least one subordinate organization to the preexisting group exemption letter or to notify the IRS of its intent to terminate the group exemption letter. Section 14.02(2)(c) of the proposed revenue procedure directs a central organization with more than one preexisting group exemption letter to determine, during the transition period, which, if any, preexisting group exemption letter it intends to maintain and to notify the IRS of its intent to terminate any additional preexisting group exemption letters.

The proposed revenue procedure will apply to all new subordinate organizations added to a preexisting group exemption letter (see sections 2.11 and 14.02(3) of the proposed revenue procedure). Section 14.02(3)(b) of the proposed revenue procedure describes the information a central organization must submit the first time it adds one or more subordinate organizations to a preexisting group exemption letter.

The proposed revenue procedure generally will apply to preexisting subordinate organizations (as defined in section 2.10 of the proposed revenue procedure). However, section 14.02(4)(b)(i) through (iii) of the proposed revenue procedure provide a grandfather rule with respect to certain requirements in the proposed revenue procedure. In particular, the following definitions and rules will not apply to preexisting subordinate organizations:

the definitions of “general supervision” or “control” in sections 3.02(3) and 3.02(4) of the proposed revenue procedure;
the matching, foundation classification, similar purpose, and uniform governing instrument requirements in section 3.03(2) of the proposed revenue procedure; and
the limitation applicable to Type III supporting organizations in section 3.04(3) of the proposed revenue procedure. Instead, definitions and rules similar to those contained in Rev. Proc. 80-27 will apply. Section 14.02(4)(c) of the proposed revenue procedure clarifies that preexisting subordinate organizations must all be described in the same paragraph of § 501(c), though not necessarily the same paragraph as the central organization; preexisting subordinate organizations described in § 501(c)(3) may be classified in any paragraph of § 509(a) (including § 509(a)(3)); and all preexisting subordinate organizations may have different primary purposes and unique, as opposed to “uniform,” governing instruments.

Additionally, section 14.02(4)(b)(iv) of the proposed revenue procedure provides that the requirement that the authorization for initial inclusion in or subsequent addition to a group exemption letter described in section 3.05(1) of the proposed revenue procedure permit the central organization

to remove a subordinate organization in certain circumstances does not apply to preexisting subordinate organizations. The IRS recognizes that imposing this requirement on preexisting group exemption letters could require the central organization to obtain new authorizations from all of its preexisting subordinate organizations, which would likely impose a considerable administrative burden on many central organizations.

Although the definitions of “general supervision” or “control” in sections 3.02(3) and 3.02(4) of the proposed revenue procedure do not apply to preexisting group exemption letters, section 14.02(4) (e) of the proposed revenue procedure explains that a central organization that meets the requirements of section 3.02(3) or section 3.02(4) of the proposed revenue procedure with respect to a particular preexisting subordinate organization will be deemed to exercise “general supervision” or “control,” as applicable, over that preexisting subordinate organization.

Finally, section 14.03 of the proposed revenue procedure provides examples of how the grandfather and transition rules function.

REQUEST FOR COMMENTS

The IRS requests comments on all aspects of the proposed revenue procedure, including the grandfather and transition rules. In particular, the IRS requests comments regarding:

the administrative burden imposed by the collections of information in sections 3.02(3) (certain information a central organization that exercises general supervision over its subordinate organizations must annually collect from its subordinate organizations and transmit to its subordinate organizations), 3.05 (authorization for initial inclusion in or subsequent addition to a group exemption letter as a subordinate organization), and 6 (SGRI) of the proposed revenue procedure;
factors indicating that a subordinate organization is affiliated with a central organization for purposes of section 3.02(2) of the proposed revenue procedure (description of affiliation); and

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whether central organizations with more than one preexisting group exemption letter would benefit from procedures permitting the consolidation or transfer of one or more preexisting group exemption letters. Comments should be submitted on or before August 16, 2020. Please include Notice 2020-36 on the cover page. Comments should be sent to the following address:

Internal Revenue Service CC:PA:LPD:PR (Notice 202036), Room 5203 P.O. Box 7604 Ben Franklin Station Washington, DC 20044 Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to:

Internal Revenue Service Courier’s Desk 1111 Constitution Ave., N.W. Washington, DC 20224 Attn: CC:PA:LPD:PR (Notice 2020-36) Submissions may also be sent electronically to the following e-mail address:

Notice.Comments@irscounsel. treas.gov. Please include “Notice 2020-36” in the subject line.

All comments will be available for public inspection and copying.

CONTINUED APPLICATION OF REV. PROC. 80-27

Pending publication of the final revenue procedure in the Internal Revenue

Bulletin, Rev. Proc. 80-27 continues to apply. However, the IRS will not accept any requests for group exemption letters starting on June 17, 2020 (30 days after publication of this notice in the Internal Revenue Bulletin) until publication of the final revenue procedure or other guidance in the Internal Revenue Bulletin.

DRAFTING INFORMATION

The principal authors of this notice are Seth J. Groman and Stephanie N. Robbins of the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations and Employment Taxes). For further information regarding this notice contact Seth J. Groman at (202) 317-4086 (not a toll-free number).

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PROPOSED REVENUE PROCEDURE