Overview
Group exemptions allow a central organization to obtain recognition of federal tax-exempt status on behalf of affiliated subordinate organizations, eliminating the need for each subordinate to separately apply for exemption. Historically, group exemptions have been widely used by national nonprofits with chapter-based or affiliate structures, including religious, educational, and healthcare organizations. In recent years, the IRS expressed concern that the program lacked sufficient transparency and imposed substantial administrative burdens on the agency.
In January 2026, the IRS issued Revenue Procedure (Rev. Proc.) 2026-8, significantly updating the rules and procedures for obtaining and maintaining group exemption letters under Internal Revenue Code (IRC) Section 501(c). This guidance represents the first comprehensive revision of the group exemption program in more than 45 years and formally ends the IRS’ nearly five-and-a-half-year suspension on issuing new group exemption letters.
Rev. Proc. 2026-8 both supersedes Rev. Proc. 80-27 and finalizes, with modifications, the framework first proposed in IRS Notice 2020-36. The new rules apply differently to organizations seeking new group exemptions and to central organizations that already maintain group exemption, with a transition period until January 22, 2027 to apply the new rules. As a result, many central organizations will need to reassess their group exemption structures, governance, and oversight practices before the transition period ends.
Rules for New Group Exemptions
Organizations seeking to establish a new group exemption on or after January 20, 2026 must comply fully with Rev. Proc. 2026-8 at the outset.
Key requirements for new applicants include:
- Approved exempt status: The exempt status of the central organization must be approved in advance or concurrently with the group application.
- Minimum number of subordinates: A central organization must have at least five subordinate organizations to obtain a group exemption. The application for group exemption should include the subordinates’ name, employer identification number (EIN), mailing address, formation date, and §501(c) classification.
- Single group exemption letter: A central organization may hold only one group exemption letter, a limitation not previously imposed under Rev. Proc. 80-27.
- Electronic filing requirement: Group exemption applications must be submitted electronically on Form 8940 using Pay.gov, along with the required user fee and supporting documentation.
- Affiliation and general supervision or control: Each subordinate must be affiliated with the central organization and subject to its general supervision or control as described below.
- Ineligible subordinate organizations: The following organizations cannot be a subordinate in a group ruling:
- Foreign organizations
- Private foundations
- Type III supporting organizations (both functionally and non-functionally integrated)
- Section 501(c)(29), Qualified nonprofit health insurance issuer
- An organization that has had its exempt status automatically revoked and not reinstated
Failure to meet these threshold requirements will prevent issuance of a new group exemption letter.
Impact on Existing Group Exemption Holders
Central organizations that already maintain group exemption letters are not required to reapply, but they must evaluate and update their existing structures to ensure compliance by the end of the transition period, which is January 22, 2027.
Key changes affecting existing group exemptions include:
- Ongoing subordinate requirement: Existing group exemption holders must maintain at least one subordinate organization to continue their group ruling.
- One group ruling: A central organization with multiple group rulings must terminate all but one before January 22, 2027.
- Affiliation and general supervision or control: Existing central organizations generally have one year from the effective date to bring themselves and their subordinates into compliance with these rules detailed below.
- Matching 501(c) paragraph: The central organization must remove any subordinate organization described in a different §501(c) paragraph than is listed in the group exemption letter.
Organizations that fail to meet the revised standards by the end of the transition period may be required to remove noncompliant subordinates from their group exemption coverage. Central organizations should meet with their advisors to discuss possible updates they may need to make before the transition period ends.
Affiliation & Supervision or Control
Central organizations must ensure that each subordinate organization continues to satisfy the affiliation and supervision or control standards described in Rev. Proc. 2026-8. Unlike prior guidance, the new revenue procedure requires central organizations to actively confirm that these standards are met on an ongoing basis, not merely at the time the group exemption is granted.
- Affiliated requirement: A subordinate organization’s affiliation with the central organization is demonstrated by facts and circumstances showing that it is a chapter, local, post, or unit of the central organization. Several examples of this include filing a group return that includes the subordinate’s information and group exemption number, maintaining an annually updated directory that includes the subordinate organization, or sharing the central organization’s common religious bond or convictions.
- General supervision requirement: A subordinate organization is subject to the general supervision of a central organization if the central organization meets these requirements:
- Annually obtains, reviews, and retains information on the subordinate organization’s finances, activities, and compliance with annual filing requirements. This can include review of the Form 990s or 990-EZs. If the subordinate files a Form 990-N, alternative financial documentation should be reviewed.
- Annually educates the subordinate organization about the requirements to maintain tax-exempt status, either in writing or electronically.
- Control requirement: A subordinate organization that does not meet the general supervision requirement must be controlled by the central organization. Evidence of control:
- The central organization appoints the majority of the subordinate organization’s directors or officers,
- A majority of the subordinate’s voting directors or officers are also directors or officers of the central organization, or
- The central and subordinate organizations enter into a written agreement that provides the central organization with control over the subordinate’s activities and operations.
Ongoing Compliance to Maintain Group Exemption
Central organizations must continue to annually submit information regarding subordinate organizations included in the group exemption. The Supplemental Group Ruling Information (SGRI) must be submitted at least 30 days, but no more than 90 days, before the close of the central organization’s annual accounting period. If the organization is a calendar year, the SGRI would be submitted no earlier than October 2, but no later than December 1 each year.
The IRS has indicated that these submissions are to be made electronically once applicable procedures are fully implemented, although temporary paper submission may be permitted if electronic procedures are not yet available. The SGRI requirement does not apply to central organizations that are churches or associations of churches.
Compliance Consequences
The consequences of noncompliance can be significant. Failure to satisfy the ongoing compliance requirements of Rev. Proc. 2026-8 may result in termination of the group. If the central organization’s recognition of exemption is revoked or otherwise terminated, all subordinate organizations lose coverage under the group exemption and must independently establish their exempt status. Loss of a group exemption can have significant downstream consequences, as affected subordinate organizations may be required to separately apply for recognition of exemption.
Key Takeaways
Rev. Proc. 2026-8 marks a fundamental shift in how the IRS administers group exemptions. Organizations considering new group exemption applications face more structured eligibility and filing requirements. Existing group exemption holders must use the transition period that ends January 22, 2027 to reassess governance, documentation, and oversight practices to avoid loss of their group exemption. Given the complexity of the new rules and the potential consequences of noncompliance, central organizations and their advisors should begin reviewing group structures and compliance processes promptly.
If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.