After a wait of nearly six years, the IRS is once again accepting group exemption applications. For nonprofit organizations that manage multiple subordinate entities, this is genuinely good news and for organizations that already hold a group exemption, there are new compliance obligations that come with a firm deadline.Here’s what you need to know.
What Is a Group Exemption?
A group exemption allows one “central” or parent organization to apply for and maintain tax exemption for its subordinate organizations through a single application, rather than filing separately for each entity. When new subordinates are formed, they are simply added to the existing group instead of going through the full individual application process. The result is lower administrative time and cost, both on the front end and on an ongoing basis.
Group exemptions are especially useful for organizations with multiple local chapters: church denominations, fraternities and sororities, youth sports programs, labor unions, and similar federated structures. To qualify, a parent organization must have at least five subordinate organizations.
Why Did the Program Stop?
The group exemption program operated for more than forty years under guidance that dated back to 1980. By 2020, the IRS had concluded that the existing rules were outdated, inconsistent in application, and increasingly burdensome to administer. In May 2020, the IRS paused the program entirely, stopping all new group exemption applications while it worked on updated guidance.
That updated guidance arrived in January 2026 in the form of Revenue Procedure 2026-8, which supersedes the old Rev. Proc. 80-27 and restarts the program on modernized terms.
What’s New Under Rev. Proc. 2026-8?
The new rules make several meaningful changes to how group exemptions work.
Subordinates no longer need to match each other’s type. They only need to qualify for exemption under the same paragraph of Section 501(c). That means a church denomination can seek a group exemption covering its churches, schools, and hospitals in a single application, since all three qualify under Section 501(c)(3). What the new rules dorequire, however, is that subordinates fulfilling the same purpose share a uniform purpose statement in their governing documents.
The parent and subordinates do not need to match each other. A parent organization exempt under Section 501(c)(4) as a social welfare organization can hold a group exemption for subordinates that are public charities under Section 501(c)(3). The matching requirement runs among the subordinates, not between the parent and the subordinates.
A parent organization may only maintain one group exemption letter. If an organization currently holds more than one, it will need to consolidate.
Demonstrating affiliation and control is now more explicit. The parent must establish affiliation with each subordinate based on all the facts and circumstances. Control can be demonstrated through the parent’s power over the subordinate’s directors or officers, or through a written agreement that evidences the parent’s control over the subordinate’s activities and operations. The written agreement option is new, and it gives organizations more flexibility in structures where board overlaps alone don’t tell the full story.
What Are the New Ongoing Obligations for Parent Organizations?
This is where things get more demanding than they were under the old rules.
- Annual financial review. The parent must annually review each subordinate’s finances. Obtaining a copy of the subordinate’s Form 990 or Form 990-EZ satisfies this requirement. Obtaining only the Form 990-N – the simple e-Postcard filed by the smallest organizations – does not. If a subordinate files only the 990-N, the parent must separately obtain written financial and compliance information from that subordinate.
- Annual compliance communication. The parent must provide each subordinate with written information about the requirements for maintaining its tax-exempt status, including any annual IRS filing requirements. This can be transmitted electronically. The IRS has indicated that sending subordinates a link to IRS Publication 557, Tax-Exempt Status for Your Organization, is one acceptable way to satisfy this requirement.
- Annual SGRI filing. Parent organizations must file an annual Supplemental Group Ruling Information (SGRI) submission with the IRS to maintain the group exemption. Under the new rules, the SGRI must be filed between 30 and 90 days before the end of the parent’s fiscal year. The SGRI is used to add or remove subordinates and to update information about existing ones. Note that churches and associations of churches are exempt from the SGRI filing requirement.
- Updated subordinate authorizations. Each subordinate must authorize the parent in writing to include it in the group exemption. Under the new rules, that authorization must expressly acknowledge that the parent can remove the subordinate from the group exemption letter with or without cause. Authorizations executed under the old rules almost certainly do not include this language and will need to be replaced.
What’s the Deadline for Existing Group Exemption Holders?
Organizations that currently hold a group exemption have until January 22, 2027 to make any updates necessary to bring their group structure into compliance with Rev. Proc. 2026-8. That deadline is not far off.
Given the work involved – reviewing subordinate authorizations, confirming purpose statement uniformity across governing documents, updating IRS records for any name changes, and establishing a documented annual supervision process – organizations should not wait until late 2026 to start. The January 2027 deadline sounds like plenty of time right now. It will not feel that way in December.
Practically speaking, existing group exemption holders should start by pulling their current status from the IRS Business Master File, checking the affiliation codes and group numbers for each entity, and identifying any subordinates that have changed names, addresses, or structures since the group exemption was originally granted. That audit will tell you where the gaps are and what needs to be addressed first.
What About Organizations That Don’t Already Have a Group Exemption?
The program is open again. Organizations with at least five qualifying subordinates can now apply for a new group exemption by filing Form 8940 electronically at pay.gov, along with the applicable user fee.
If you manage a collection of affiliated nonprofits and have been handling each one’s exemption application separately, a group exemption is worth evaluating. The administrative savings over time can be significant, particularly as the organization grows and adds new subordinates.
The Bottom Line
Rev. Proc. 2026-8 brings the group exemption program back to life after a long pause – but it brings it back with higher expectations. The new rules treat a group exemption not as a one-time determination but as an ongoing compliance relationship between the parent organization, its subordinates, and the IRS.
For organizations already holding a group exemption, the work of coming into compliance with the new standards starts now. For those considering a group exemption for the first time, the door is open.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form. This post is for general informational purposes and does not constitute legal advice.