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$GefA GENERAL COU~,jCIL ON finai',ce t\nd ADMINI') - RATION THE UNITED METHODIST CHURCH PO Box 34002<;1 N~-!.TN37203-002<;1 1.g.I"':/cf. org (6L5) 36q.$

1 GefA GENERAL COU~,jCIL ON finai',ce t\nd ADMINI') - RATION THE UNITED METHODIST CHURCH PO Box 34002<;1 N~-!.TN <;1 1.g.I"':/cf. org (6L5) 36q.240q March 18,2010 Organization Address City, ST Re: Important Infonnation for Affiliated Organizations Included in The United Methodist Church Group Tax Exemption Ruling Dear Sir or Madam: Our records indicate that your organization is included as an "affiliated organization" in The United Methodist Church Group Tax Exemption Ruling ("group ruling"). We, the General Council on Finance and Administration of The United Methodist Church ("GCF A"), are the "central organization" responsible for managing the group ruling. The purpose of this letter is to inform you that your organization may need to take certain actions to preserve its tax exempt status. On October 16, 1974, the Internal Revenue Service ("IRS") issued the group ruling to (what is now called) GCF A, who applied for the group ruling on behalf of The United Methodist Church. The IRS Group Exemption Number ("GEN") for the group ruling is The group ruling states that United Methodist local churches, annual conferences, general agencies. and "other affiliated organizations" are exempt from federal income tax under Section 50 I(c)(3) of the tax code. Thus, all of our more than 35,000 local churches, annual conferences, and general agencies are included in the group ruling. In addition, since 1974, more than 700 "other affiliated organizations" have applied to, and been accepted by GCF A for inclusion in the group ruling. (As discussed above, our records indicate your organization was approved for inclusion in the group ruling, and continues to be included to this day.) This letter is addressed only to these "other affiliated organizations" included in the group ruling. GCF A has engaged the services of outside legal counsel to review our group ruling in the context of changes to the tax law that have occurred since the group ruling was issued in As a result of their review, they have determined that some affiliated organizations included in the group ruling may need to take additional steps to insure they maintain their tax exempt status with the IRS. Specifically, to maintain your tax exempt status, your affiliated organization

may need to file IRS Form 990 (Return of Organization Exempt From Income Tax) annually. The Form 990 Filing Requirement Most tax exempt organizations must file an IRS Form 990 each year.

3 may need to file IRS Form 990 (Return of Organization Exempt From Income Tax) annually. The Form 990 Filing Requirement Most tax exempt organizations must file an IRS Form 990 each year. The Form 990 is an "information return" that asks about the organization's structure, mission, and finances. It is a very detailed form, but many organizations are eligible to file the abbreviated Form 990-EZ, or even the Form 990-N (e-postcard). The Form 990 must be filed by the 15 th day of the 5 th month following the end of the organization's annual accounting period. Thus, for organizations with a calendar year accounting period, the Form 990 is due on May 15 th Monetary penalties can be imposed for failing to file Form 990, unless the organization can show reasonable cause for not filing. But in addition, starting on May 15, 2010, and each year thereafter, if an organization fails to file a Form 990 for three consecutive years, it will automatically lose its tax exempt status. Thus, if a calendar year organization is required to file a Form 990 annuaily, and did not do so in 2007 and 2008, it must file its 2009 Form 990 on or before May 15,2010, to avoid automatic revocation of its tax exempt status. Also note, that ifan organization's tax exemption is revoked for failing to file Form 990 for three consecutive years, it must apply to the IRS for reinstatement of its tax exempt status. In particular, if such an organization was included in the group ruling, it cannot regain its tax exempt status by applying to OCF A to be included again in the group ruling. Form 990 and the Group Ruling Many religious organizations are exempt ITom filing Form 990. In particular, United Methodist local churches, annual conferences, and general agencies have always been, and continue to be exempt from filing Form 990. The situation is less straightforward for other United Methodist affiliated organizations covered under the group ruling. The October 16, 1974, letter from the IRS granting the group ruling states that all organizations covered under the group ruling "are not required to file the Return for Organizations Exempt From Income Tax. Form 990. as you come within the exception contained in section 6033(a)(2)(A)(i) of the Code." Our legal counsel have advised us that affiliated organizations included in the group ruling should no longer rely solely on this statement as a basis for being exempt from filing Form 990. Many, if not most, affiliated organizations included in the group ruling are exempt from filing Form 990, but some affiliated organizations may not be. (And some affiliated organizations included in the group ruling may already be filing Form 990.) In \ 974, the Form 990 filing exception contained in Section 6033(a)(2)(A)(i) (now Section 6033(a)(3)(A)(i)) of the tax code was for "churches, their integrated auxiliaries and conventions or associations of churches." At that time, the tax code and regulations did not define the terms "churches," "integrated auxiliaries" and "conventions or associations of churches." Of particular importance for our purposes is the meaning of the term "integrated 2

auxiliary." Since 1974, there has been substantial confusion, and even litigation, over the issue of what is an integrated auxiliary of a church. But that issue is now fairly well settled.

5 auxiliary." Since 1974, there has been substantial confusion, and even litigation, over the issue of what is an integrated auxiliary of a church. But that issue is now fairly well settled. And we believe that many of the affiliated organizations included in the group ruling do qualify as integrated auxiliaries under the current definition of that term, and as such, are exempt from filing Form 990. But some affiliated organizations included in the group ruling may not qualify as integrated auxiliaries under the current definition of that term, and hence, if they do not fall under some other filing exemption, will need to file Form 990 annually. Unfortunately, determining whether an organization qualifies as an integrated auxiliary of a church, or satisfies some other exemption from filing Form 990 can be complicated, and may require a detailed analysis of both the amount and sources of an organization's financial support. For this reason, GCFA strongly recommends that all affiliated organizations included in the group ruling consult with their professional tax advisers to determine whether they are exempt from filing Form 990. Moreover, as discussed above, if an affiliated organization is required to file an annual Form 990, and has not done so for the past two years, it must timely file its 2009 Form 990 to avoid automatic revocation of its tax exempt status. Please note that GCF A cannot provide legal or tax advice to individual affiliated organizations, and in particular, we cannot advise your organization on whether it is or is not exempt from filing Form 990. But in the attachment to this letter, we offer a general discussion of some exceptions to the Form 990 filing requirements that will probably apply to most affiliated organizations included in the group ruling. You may wish to share this attachment with your professional tax adviser to assist him or her in applying this general guidance to your specific facts and circumstances. GCFA Legal Services Department 3

Attachment Exceptions to the Form 990 Filing Requirement As noted in the letter accompanying this attachment, most tax exempt organizations must file an IRS Form 990 each year.

7 Attachment Exceptions to the Form 990 Filing Requirement As noted in the letter accompanying this attachment, most tax exempt organizations must file an IRS Form 990 each year. But many church affiliated and religious organizations are exempt from the Form 990 filing requirement. In particular, United Methodist local churches, annual conferences, and general agencies are exempt from filing Form 990. But as discussed in the accompanying letter, other affiliated organizations included in The United Methodist group ruling may need to file Form 990 annually. In this attachment we discuss a few broad exceptions to the Form 990 filing requirement that probably apply to most affiliated organizations included in the group ruling. But there are several other Form 990 filing exemptions for religious or church affiliated entities that we do not discuss. Some of these other filing exemptions only apply to entities that are not "supporting organizations" (as that term is defined in the tax code and regulations). While many of the affiliated organizations included in the group ruling are probably not supporting organizations, the tests for determining whether an organization is or is not a supporting organization is complex. These tests involve an analysis of both the amounts and sources of the organization's financial support. In very rough terms, tax exempt organizations are not classified as supporting organizations if they satisfy one of two "public support tests." The first public support test requires that the organization normally receive more than one-third of its total financial support from: (a) gifts, grants, and contributions from other organizations which, themselves, satisfy one of these two public support tests, plus (b) gifts, grants, and contributions from governmental sources, plus (c) gifts, grants, and contributions from individuals (which do not exceed 2% of the organization's total financial support). The permissible ratio for this test can be lowered from one-third to one-tenth if other facts and circumstances are present, including evidence the organization is organized and operated in a manner to attract new and additional public or governmental support on a continuous basis. Many typical charities satisfy this first public support test. The other way to avoid being classified as a supporting organization is to satisfy the second public support test. The second public support test is for organizations that receive a large portion of their financial support from admissions, sales of merchandise, performance of services, and furnishing of facilities in activities related to the purpose for which they are tax exempt (e.g., religious, charitable, or educational purposes). The second public support test requires that the sum of this "exempt purpose" income, plus certain gifts, grants, contributions, and memberships fees must normally exceed one-third of the organization's total financial support. In addition, the second public support test requires that the organization not receive more than one-third of its total support from investment income. It is important to emphasize that the preceding discussion of the two public support tests was grossly oversimplified. In that short summary, we omitted many important details involved with these complex tests. We strongly recommend that you seek the advice of a professional tax adviser if you need to determine whether your organization satisfies one of these two public support tests.

Unless otherwise noted, the broad Form 990 filing exemptions we discuss below apply regardless of whether or not your affiliated organization is a supporting organization.

9 Unless otherwise noted, the broad Form 990 filing exemptions we discuss below apply regardless of whether or not your affiliated organization is a supporting organization. But if these broad Form 990 filing exemptions do not apply, your tax adviser can help you determine if your organization is a supporting organization, and whether there is another filing exemption that may apply. After discussing the broad Form 990 filing exemptions, we will discuss the circumstances when an affiliated organization required to file a Form 990, may instead, file Form 990-N (epostcard) or the abbreviated Form 990-EZ. Activities or Programs That Are Not Separate Legal Entities All affiliated organizations included in the group ruling are "associated" or "affiliated" with a "church sponsor," e.g., a local church, annual conference, or general agency. If your affiliated organization is not a separate legal entity from its church sponsor, but is merely an activity, program, or mission of its church sponsor, your affiliated organization is not required to file a Form 990. Under the tax code, only legal entities can be recognized as tax exempt organizations (separate and apart from their church sponsors), and hence, be required to file Form 990. It is sometimes difficult, however, to determine whether an activity or program of a church sponsor is a separate legal entity. But there are a few general principles. First, if under state law your affiliated organization is separately incorporated from its church sponsor, your affiliated organization is clearly a separate legal entity. Unincorporated affiliated organizations mayor may not be legal entities separate and apart from their church sponsors. Such a determination will depend on state law, and the particular facts and circumstances. But in any event, an unincorporated affiliated organization included in the group ruling will not be considered to be a tax exempt entity separate and apart from its church sponsor unless it has its own "organizing document" (e.g., a charter or bylaws) and its own IRS Employer Identification Number ("EIN"). In other words, if your affiliated organization is unincorporated, and does not have both its own organizing document and its own EIN, it is considered to be just an activity of its church sponsor, and is not required to file Form 990. Please consult with your professional tax adviser to assist you in determining whether your affiliated organization is a separate legal entity from its church sponsor. Integrated Auxiliaries of a Church Integrated auxiliaries of a church are exempt from filing Form 990. This Form 990 filing exemption will probably cover many, if not most, of the affiliated organizations included under the group ruling. An affiliated organization included in the group ruling is an integrated auxiliary if: (I) it is a men's or women's organization, or seminary, mission society, or youth group; (2) it is "internally supported." 2

10 ,

As defined in the regulations, an organization is internally supported, unless it both: (i) Offers admissions, goods, services or facilities for sale, other than on an incidental basis, to the

11 As defined in the regulations, an organization is internally supported, unless it both: (i) 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 for an insubstantial portion of the cost); and (ii) Normally receives more than 50 percent of its support from a combination of governmental sources, public solicitation of contributions, and receipts from the sale of admissions, goods, performance of services, or furnishing of facilities in activities that are not unrelated trades or businesses. In other words, an affiliated organization (i), or it is not described in (ii). is an integrated auxiliary if it is not described in Some examples may help illustrate this definition of internally supported. An affiliated organization that is a typical thrift store or soup kitchen will probably be internally supported (and hence, be an integrated auxiliary) because it is not described in (i) above. While it offers goods and services for sale to the general public, it does so for a nominal charge or for an insubstantial portion of the cost of the goods. Also, many Wesley Foundations will probably be internally supported as well because they don't ofter admissions, goods, services, or facilities for sale, other than on an incidental basis, to the general public. As another illustration of (i) above, the typical local church or annual conference foundation manages endowment funds for a church or church entities, and also solicits and accepts gifts for the church. But most foundations do not offer admissions, goods, services or facilities for sale, other than on an incidental basis, to the general public, and hence, are internally supported. Affiliated organizations that do offer admissions, goods, services or facilities for sale to the general public, can still be internally supported (and hence, integrated auxiliaries) if they are not described in (ii) above, Le., they receive more than 50% of their support "internally" from the church. For example, affiliated organizations that are camps or retreat centers typically do offer their services or facilities for sale to the general public. But as long as the church normally provides at least 50% percent of the support for such organizations, they will be internally supported. Church Affiliated Schools Many affiliated organizations included under the group ruling are church affiliated schools, and many of these will be exempt from filing Form 990. Church affiliated schools included in the group ruling will be exempt from filing Form 990, provided, the school is an "educational organization," below college level (including preschools), that has a program of a general academic nature. For this purpose, to be considered an educational organization, the church affiliated school must have as its primary function the presentation of formal instruction, normally must maintain a regular faculty and curriculum, and normally must have a regularly enrolled body of students in attendance at the place where its educational activities are regularly carried on. A church affiliated school is not considered as meeting these requirements 3

if it engages in both educational and non-educational activities, unless the latter activities are merely incidental to the educational activities.

13 if it engages in both educational and non-educational activities, unless the latter activities are merely incidental to the educational activities. But note that any church affiliated school that does not file either Fonn 990 or Form 990-EZ, must file IRS Form 5578 (Annual Certification of Racial Nondiscrimination for a Private School Exempt from Federal Income Tax) annually. (The information required by Form 5578 is included as Schedule E to Forms 990 and 990-EZ.) Under the law, all private schools, including church affiliated schools, must comply with the requirements of IRS Revenue Procedure regarding racial nondiscrimination. Form 5578 is the required annual certification that a private school is in compliance with Revenue Procedure Form 5578 is a very short form. It simply asks for: (1) the name, address, and EIN of the organization that operates, supervises, and/or controls the school; (2) the name (General Council on Finance and Administration of The United Methodist Church, Inc.), address (One Music Circle North, P.O. Box , Nashville, TN ), and EIN ( ) of the central organization holding the group ruling covering the school; (3) the IRS Group Exemption Number (2573) of the group ruling; and (4) the name, address, and EIN of the school. Finally, and most importantly, the form requires an official of the school to certify that the school satisfies the requirements of Revenue Procedure The requirements of Revenue Procedure are described in the instructions accompanying Form 5578, which is available on the IRS website. In short, Revenue Procedure requires that every private school adopt and follow a racial nondiscrimination policy prohibiting discrimination against applicants and students on the basis of race, color, and national or ethnic origin, and the school must maintain records documenting that it has followed such a policy. Furthermore, the school must make its racial nondiscrimination policy known to the public in certain specified ways described in Revenue Procedure The instructions to Form 5578 provide model language that can be used for this purpose. Form 990-N and Fonn 990-EZ There are three forms in the Form 990 series: Form 990-N, Form 990-EZ, and Form 990. An affiliated organization required to file Form 990, may be eligible to file one of the simpler forms, Form 990-N or Form 990-EZ, instead of the (full) Form 990. Fonn 990-N - The IRS refers to this form as an "e-postcard," because it is very short (there are only eight simple questions) and the form can only be filed electronically. If your affiliated organization included in the group ruling is required to file Form 990, it can tile Form 990-N instead, if your affiliated organization's annual gross receipts are normally $5,000 or less. Also, if your affiliated organization is not a supporting organization, it may file Form 990-N if its annual gross receipts are normally $25,000 or less. (Affiliated organizations that are supporting organizations, and have gross receipts in excess of $5,000, must file Form 990 (or Form 990-EZ, if eligible).) For more information about filing Form 990-N, see the following article on the IRS website: 4

15 Please be prepared for possible difficulties with filing the Form 990-N for the first time. Specifically, Forms 990-N filed by some affiliated organizations included in the group ruling may be rejected because the affiliated organization's EIN may not be in the IRS's database. In this situation, you will need to contact technical support for the Form 990-N: When you contact technical support, inform them that your affiliated organization is a subordinate organization in The United Methodist Church group ruling (Group Exemption Number: 2573). It is our understanding that technical support will then make certain adjustments to their automated system to accept your organization's EIN, and thus enable you to file Form 990-N. But if technical support cannot or does not promptly resolve your Form 990-N issue, and you must timely file a 2009 Form 990 to avoid automatic revocation of your tax exempt status, it may be prudent to timely file a Form 990-EZ or Form 990, at least for this first year. Then in subsequent years, you should be able to file Form 990-N without these difficulties because the IRS database will have your organization's EIN from this year's filing. Form 990-EZ - This form is an abbreviated version of the Form 990. Any affiliated organization included in the group ruling that is required to file Form 990 in 2009, may instead file Form 990-EZ, provided, its annual gross receipts for its 2009 tax year are less than $500,000, and its total assets at the end of its 2009 tax year are less than $1,250,000. Please note the purpose of this attachment and accompanying letter is to provide general information and guidance to affiliated organizations covered under The United Methodist Church group ruling. But nothing in this communication should be construed as legal or tax advice concerning your particular organization's situation or circumstances. GCFA cannot provide legal or tax advice to your organization, including whether or not your organization is required tofile Form 990. Therefore, we strongly recommend you consult with a professional tax adviser regarding the matters addressed in this attachment and the accompanying letter... 5

APPLICATION FOR INCLUSION IN THE UNITED METHODIST CHURCH GROUP TAX EXEMPTION RULING. Category II Organizations

APPLICATION FOR INCLUSION IN THE UNITED METHODIST CHURCH GROUP TAX EXEMPTION RULING Category II Organizations A. General Information and Instructions A1. In 1974, the IRS issued a group tax exemption ruling