Credit Unions and Automatic Revocation of Exemption: Letters Notifying Credit Unions that Parent Organizations Not Exempt
Situation Three: A credit union received one or two letters from the IRS stating its parent organization was no longer tax exempt.
Below we answer the questions we have received most often about the letters.
Why did the IRS send letters?
The IRS sent letters (Letter 4777) to all organizations (not just credit unions) identified in IRS records as deriving their recognition of exemption from being included in a group ruling, where the parent or central organization identified as holding the group exemption letter did not file an annual return for three consecutive years. According to what was contained in IRS records, the exemption of the parent organization was automatically revoked and the group exemption was dissolved. The letter erroneously stated that the subordinate organizations ceased to be tax-exempt.
Revenue Ruling 60-364, 1960-2 C.B. 382, held that a state agency may file a group information return on behalf of all the exempt state-chartered credit unions under its control and supervision, in lieu of each individual state-chartered credit union filing a separate information return. Credit unions in states that had ceased filing group returns received the letter described above because of the way state credit unions that filed group returns were maintained on IRS systems.
The IRS sent the second letter (Letter 4896) in February 2012, to correct the erroneous statement. If the credit union continued to meet its annual filing requirements, it could hold itself out as tax exempt as long as it meets all other applicable requirements for tax exemption under the Internal Revenue Code.
If I got the letters, does that mean my organization’s exemption has been automatically revoked?
No. As noted above, this anomaly resulted from the way state credit unions previously included in a group return were maintained on IRS systems.
If I got one or both letters, does that mean my organization’s exemption has NOT been automatically revoked?
Not necessarily. The IRS only sent the letters to organizations that, at the time each letter was sent, were identified as state credit unions in good standing (and not revoked under § 6033(j) for not filing for three consecutive years). In other words, if you got a letter or letters, it is because at the time the letter or letters were sent, our records did not indicate that your organization’s tax exemption was automatically revoked.
However, the Auto-Revocation List is updated monthly to reflect additions of organizations that have failed to file their third consecutive required return. If you got the first letter, but not the second one, you should check to see if your organization is included on the Auto-Revocation List. Before we sent the second letter (Letter 4896), we looked again at the accounts of all organizations that had received the first letter. If an organization’s account had, in the intervening time period, been updated to reflect that its tax-exempt status had been revoked because it had not filed for three consecutive years, then we did not send the second letter to that organization.
If you received both letters, make sure your organization continues to file its required annual returns. IRS records indicate that your organization has an annual filing requirement. If your organization fails to file returns for three consecutive years, its exemption will be automatically revoked.
If your state credit union appears on the Auto-Revocation List, refer to Situation Two.