New Group Exemption Requirements

On January 15, 2026, the Internal Revenue Service (“IRS”) issued Revenue Procedure 2026-8 (Rev. Proc. 2026-8) which updates the procedures for obtaining and maintaining group exemption.  In 2020, through Notice 2020-36, the IRS had proposed a new group exemption Revenue Procedure that would have imposed many new requirements for obtaining and maintaining group exemption.  Public comments to Notice 2020-36 suggested that it was considered overly burdensome.  A number of the requirements stated in Notice 2020-36 are absent from the new procedure, Rev. Proc. 2026-8.  

Under Notice 2020-36, the IRS stopped accepting applications for group exemptions starting June 17, 2020 (thirty days after Notice 2020-36 was published).  The IRS resumed accepting group exemption applications after January 20, 2026.

Highlights of Rev. Proc. 2026-8 follow:

Obtaining a Group Exemption

Under Rev. Proc. 2026-8, a central organization applying for group exemption will need to have at least five (5) subordinates.  According to the IRS, the administrative burden of processing one group application is comparable to the administrative burden of processing four individual applications for tax exemption.  Accordingly, the requirement that a central organization have at least four (4) subordinates appropriately balances the burdens the IRS faces in administering the group exemption program.

The application for group determination may be made concurrently with the central organization’s application for tax exemption or reinstatement of tax exemption, or following its determination of tax exemption.

Rev. Proc. 2026-8 states that the IRS may require central organizations to provide additional information in their group exemption applications, and requires them to update information that becomes incorrect while the application is pending.  Applications for group exemption are now submitted electronically on IRS Form 8940.

Rev. Proc. 2026-8 provides that the IRS may decline to issue a group exemption letter if it is not in the interest of sound tax administration.  One example was provided:  where the activities described in the application involve complex facts and circumstances that are more appropriately evaluated on an organization by organization basis.

Each subordinate organization must meet the following criteria:

1. It must be subject to the central organization’s general supervision or control.
2. It must be affiliated with the central organization.
3. It must be described in the same paragraph of § 501(c) of the Internal Revenue Code (“IRC”) as every other subordinate organization.
4. It must meet the uniform purpose statement requirement discussed below.
   

Maintaining Group Exemption Status

Rev. Proc. 2026-8 describes the standards and requirements that central organizations and their subordinates must meet in order to maintain group exemption status.  These include the following:

1. General Supervision Standards
2. Control Standards
3. Affiliation Standards
4. Uniform Purpose Statement Standards
5. Annual Accounting Period Requirements
6. Authorization Requirements

In addition, Rev. Proc. 2026-8 provides new guidance regarding organizations that are not eligible to be included in a group exemption, the steps to be taken if a subordinate organization is auto-revoked, and the annual submissions to be made to the IRS by the central organization.

General Supervision Standard:  IRS Form 990

The general supervision standard is met if the central organization obtains, reviews and retains information on the subordinate organization’s finances, activities, and compliance with annual IRS filing requirements, and annually transmits to the subordinate organization or otherwise educates the subordinate organization about the requirements for maintaining tax-exempt status, including annual IRS Form 990 requirements if applicable.

Subordinate organizations may now provide their IRS Form 990 or IRS Form 990EZ to their central organizations in connection with the general supervision requirement.  The IRS Form 990-N is not sufficient and additional written information must be provided in some other manner.  A separate rule is provided for organizations not required to file the IRS Form 990.  A church central organization might satisfy the supervision standard by providing its church subordinate with the current version of IRS Publication 1828 Tax Guide for Churches & Religious Organizations available on www.irs.gov, which provides information about the requirements to maintain tax-exempt status under IRC § 501(c)(3).

Control Standard

A subordinate organization is subject to a central organization’s control if any one of the following is true:

1. The central organization appoints the subordinate organization’s directors or trustees who hold a majority of the voting control of the subordinate organization.
2. The central organization appoints a majority of the subordinate organization’s officers.
3. The subordinate organization’s directors or trustees possessing a majority of its voting control are directors or trustees of the central organization.
4. A majority of the subordinate organization’s officers are officers of the central organization.

Alternatively, the central organization can establish control over the subordinate organization’s activities and operations through a written agreement.  For example, the written agreement may require the central organization to approve the subordinate organization’s directors or officers.  Or the central organization may enter into a management agreement with the subordinate organization.

Affiliation Standard

Facts and circumstances may be used to demonstrate that the subordinate organization is a chapter, local, post or unit of the central organization.  For example, the inclusion of the subordinate organization’s information on a group return may be sufficient, or its inclusion in a directory of subordinate organizations updated annually by the central organization, or, in the case of a church group exemption, the sharing of common religious bonds or convictions with the central organization.

Uniform Purpose Statement Standard

Subordinate organizations that share the same purpose must have a uniform purpose statement in their governing instruments.  The Treasury Department and IRS believe this will help the central organization ensure that the subordinate organizations have a valid exempt purpose.

Annual Accounting Period Requirement

Subordinate organizations must have the same annual accounting period as the central organization in order to be included in a group return.

Authorization Requirements

Each subordinate organization, through an authorized officer, must provide written authorization to the central organization to be included in the group exemption.  The written authorization must acknowledge that the central organization may remove the subordinate organization from the group exemption, with or without cause.

Ineligible Organization

Certain organizations are not eligible to be included in a group exemption as a subordinate organization:

• An organization organized in a foreign country.
• A tax-exempt private foundation.
• A Type III supporting organization.
• A qualified nonprofit health insurer described in IRC § 501(c)(29).
• An organization whose tax-exempt status has been auto-revoked and has not been reinstated.

Auto-Revocation Requirements

An organization that has its tax-exempt status automatically revoked must file an application for reinstatement even if it was not originally required to apply for tax-exempt status as a subordinate organization.

Supplemental Group Ruling Information

Supplemental Group Ruling Information (SGRI) submissions must be made by central organizations when a new subordinate organization is added to the group exemption.  The SGRI must include a statement that the information on which the group exemption is based (as updated by the current or previous SGRI) applies to the new subordinate organization in all material respects.  The SGRI must also include the date of formation of each new subordinate organization.

The SGRI must include information regarding changes in the purposes, character or method of operation of the subordinate organization, and a list of any tax-exempt organizations that have had their tax-exempt status auto-revoked.

The annual SGRI must be filed not earlier than ninety (90) days before the end of the accounting period, and not later than thirty (30) days before the end of the accounting period, but additional filings may be made at any time.

The IRS may specify additional information to be included in the SGRI.

Removal of a Subordinate Organization by the Central Organization

To remove a subordinate organization from the group exemption, the central organization sends the IRS an SGRI submission with thirty (30) days’ notice to the subordinate organization. 

Termination by the IRS

The IRS may terminate a group exemption letter with respect to all subordinate organizations for noncompliance with Rev. Proc. 2026-8, including, among other reasons, making any SGRI submission late or failing to exercise general supervision or control over one or more subordinate organizations.  The IRS may also terminate a group exemption letter if more than half of the subordinate organizations have had their tax-exempt status auto-revoked.

An individual subordinate organization will be terminated from the group exemption under each of the following circumstances:

• The central organization removes the subordinate organization from the group exemption.
• The IRS determines that the subordinate organization is not qualified to be part of a group exemption.
• The subordinate organization’s tax-exempt status is auto-revoked.
• The subordinate organization fails to satisfy certain Rev. Proc. 2026-8 requirements.

Pre-Existing Subordinate Organizations and Transition Period

A one-year transition period, ending January 22, 2027, applies to existing group exemption holders, with respect to the new affiliation, supervision and control requirements.
Pre-existing subordinate organizations will continue to be grandfathered with respect to a few requirements, even after the transition period, as follows:

• The uniform purposes requirement will not apply.
• They may continue to qualify as Type III supporting organizations, if applicable.
• A qualified nonprofit health insurer described in IRS § 501(c)(29) may continue to qualify as a subordinate organization.
• Their authorization for inclusion as a subordinate organization need not acknowledge that they can be removed with or without cause.

If you have any questions about group exemptions or tax-exemption compliance, please reach out to K&B attorneys Elka Sachs (esachs@kb-law.com) or Erica Hudson.

Krokidas & Bluestein LLP’s Nonprofit Law Practice provides a full array of advice and guidance to nonprofit organizations of all types, on a wide range of legal matters, including tax exemption, nonprofit governance, public charities law, mergers, acquisitions and corporate affiliations, joint ventures with for-profits, regulatory and compliance matters, employment, real estate, financing and litigation.