Group exemptions have long played a critical role in how nonprofit organizations operate under a shared tax-exempt structure, but recent regulatory updates are reshaping that landscape. This summary of our webinar, “Group Exemptions: An Update and Conversation About Impact,” will explore the IRS’ updated guidance for nonprofits.
Organizations Have Until January 22 to Comply
Revenue Procedure 2026-8 offers anticipated guidance on group exemptions and lifts the moratorium the IRS put in place in 2020. A group exemption lets a central organization obtain tax-exempt status for its subordinates on a group basis, rather than filing a separate Form 1023 for each entity. Organizations that already hold a group exemption have a transition period ending January 22, 2027 to come into alignment. Nonprofits should use this time to evaluate their structure, governance, and oversight processes.
Several changes stand out. New group exemptions now require at least five subordinate organizations, though pre-existing exemptions need only one once the transition period ends. A central organization may hold only one group exemption, so any entity carrying two must decide which to keep. Organizations also cannot mix 501(c) types within a single group; if the letter is for 501(c)(3)s, every subordinate must be a 501(c)(3). Ineligible categories include foreign-organized entities, private foundations, Type III supporting organizations, 501(c)(29) health insurance issuers, and organizations whose exemption was revoked and not reinstated.
Central Organizations Face Increased Oversight & Compliance Responsibilities
The central organization carries the compliance burden. Each year, it must send the IRS a reporting letter at least 30 days before its year-end, listing additions, removals, name and address changes, and the full roster of subordinates. Keeping that list accurate matters; an organization accidentally left off for three years faces automatic revocation of tax-exempt status. Every group exemption must satisfy the affiliation requirement, plus either general supervision or control. General supervision means collecting annual financial and activity data, often a copy of each subordinate’s Form 990, and educating subordinates in writing about the rules for keeping tax-exempt status. Control typically means electing a majority of directors or using a written governance or management services agreement. New group exemption applications will complete Form 8940, filed electronically on pay.gov, with a $3,500 user fee.
Group Exemptions Can Provide Efficiencies, But May Not Be the Right Fit for Everyone
Benefits include a streamlined process for adding new affiliates and greater consistency across a network of organizations. Adding a new entity to an existing letter is far quicker than waiting nine months to a year for the IRS to issue a determination letter through Form 1023. Some 990 reporting shrinks too, since the group return reports only the top five compensated individuals and top five independent contractors across the whole group. Larger national organizations may also find oversight of subordinates easier.
However, a group exemption is not a silver bullet. Organizations must weigh the benefits against increased compliance obligations, governance requirements, and the risk that issues at one subordinate organization could affect the broader group. Subordinates lose their individual determination letters, which can create confusion with local funders, grantors, state registrations, and bond applications. One subordinate’s misstep can draw IRS scrutiny across the entire group, and the central organization shoulders that compliance responsibility.
Additional Information
The IRS’ updated guidance provides long-awaited clarity for nonprofit organizations that maintain or are considering a group exemption. While the rules create new compliance expectations, they also establish a clearer framework for oversight and growth, making it important for organizations to evaluate whether a group exemption aligns with their long-term operational and governance needs. For additional information, read our related FORsights™ article, “IRS Issues Comprehensive Overhaul of Group Exemption Rules.” Also, see IRS Form 15644, Supplemental Group Ruling Information, that was released in July 2026.
How Forvis Mazars Can Help
Nonprofit organizations need guidance they can act on with confidence. We provide tailored assurance, tax, and consulting services shaped around how your organization works—helping you strengthen financial stewardship, make informed decisions, and build resilience for what’s next. If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.