New Changes Announced for Nonprofits with Group Tax Exemptions

The Internal Revenue Service (IRS) issued new rules (Revenue Procedure 2026-08) applicable to group exemptions on January 20, 2026, adding significant compliance requirements for nonprofits that maintain or wish to maintain such exemptions. The revenue procedure comes more than five years after the IRS issued a set of proposed changes to group exemptions and instituted a moratorium on granting new group exemptions.

Over the past 15-plus years, the IRS has signaled its discomfort with the group tax exemption regime, expressing concern that the existing approach may be too lax. The IRS Advisory Committee on Tax-Exempt and Government Entities released a report in 2011 critical of the existing approach to group exemptions; the IRS engaged in an information-gathering process on the issue in 2013; it then issued a proposed revenue procedure in May 2020.

New Requirements for Central and Subordinate Organizations

Group exemptions represent an attractive option for many nonprofits with chapter and affiliate networks, as they allow organizations to avoid the time-consuming exemption application process.

A group tax exemption may be obtained by a "central organization" for a group of "subordinate" organizations if the central organization declares that it exercises "general supervision or control" over the subordinate organizations in the group. The group exemption has been used over the years by a number of large national nonprofit organizations that have multiple state or local chapters or affiliates. The IRS maintains more than 4,000 group exemptions providing exemption to more than 400,000 subordinate organizations.

The final revenue procedure adds new requirements for central and subordinate organizations seeking to obtain and maintain group exemption letters. Of note, these requirements are subject to certain transition and grandfather rules that help protect preexisting group exemption letters.

Central Organizations: The final revenue procedure adds two new requirements that central organizations must meet. Under the old rules, a central organization needed to only be described in Section 501(c) or be an instrumentality or agency of a political subdivision to act as a central organization. Under the new requirements, central organizations also (i) must have at least five subordinate organizations to obtain a group exemption and (ii) must maintain at least one subordinate at all times. Furthermore, the final revenue procedure prohibits central organizations from maintaining more than one group exemption letter.

Subordinate Organizations: The final revenue procedure adds definitions for several key terms related to subordinate organizations and modifies the requirements for a central organization's relationship with subordinate organizations by adding three new requirements that must be satisfied for subordinate organizations to be included in or added to a group exemption letter.

Added Definitions

Revenue Procedure 80-27, the prior revenue procedure governing group exemptions, required subordinate organizations to be affiliated with the central organization and subject to its general supervision or control; however, these terms were not defined. New definitions of these terms impose conditions that central organizations would need to satisfy to establish sufficient affiliation with, supervision of, and control over the subordinate organization.

1. Affiliation: The final revenue procedure creates a "facts and circumstances" standard, which looks to the facts and circumstances of a central organization and a subordinate organization's relationship to determine if they are affiliated. The new definition also added several examples demonstrating affiliation.^[1]
2. General Supervision: The final revenue procedure provides that a subordinate organization is subject to the "general supervision" of a central organization if the central organization annually (i) obtains, reviews, and retains information on the subordinate organization's finances, activities, and compliance with annual filing requirements; and (ii) transmits or otherwise educates the subordinate organization about the requirements to maintain tax-exempt status. The final revenue procedure specifies that the central organization may satisfy the first requirement by obtaining a copy of a subordinate organization's Form 990 or Form 990-EZ. However, receiving a copy of a subordinate organization's Form 990-N does not satisfy the requirement.^[2]
3. Control: The final revenue procedure states that a subordinate organization is under the control of the central organization if (i) the central organization appoints a majority of voting directors of the subordinate organization; (ii) the central organization appoints a majority of the subordinate organization's officers; (iii) there is a majority overlap of directors between the subordinate organization and the central organization; (iv) there is a majority overlap of officers between the subordinate organization and the central organization; or (v) there is a written agreement evidencing control.

Modified Requirements

To qualify as a subordinate organization, organizations would also need to satisfy the following new requirements:

1. Uniform purpose statement requirement: All subordinate organizations that share the same purpose must have a uniform purpose statement in their governing instruments. If a group exemption includes subordinate organizations that have different purposes than other subordinate organizations covered by the group exemption, the subordinate organizations with the same purposes need to have matching purpose statements in their governing instruments.
2. Type III Classification Requirement: Subordinates can no longer be classified as Type III supporting organizations under Section 509(a)(3). Private foundations continue to be ineligible for group exemptions, as either a central organization or a subordinate organization.

Required Notifications for 501(c)(4) Subordinates

The final revenue procedure adds a requirement that subordinate organizations described in Section 501(c)(4) must submit a completed Form 8976, Notice of Intent to Operate Under Section 501(c)(4).

Authorization for Inclusion

The final revenue procedure adds a new requirement that the central organization must be authorized by the subordinate organization not only to add the subordinate in the group exemption letter but also to remove the subordinate organization with or without cause.^[3] Each subordinate organization is also required to have its own taxpayer identification number, separate from that of the central organization.

Transition and Grandfather Rules for Preexisting Group Exemptions

The final revenue procedure applies to both new and preexisting group exemptions. To aid with the transition, the IRS is providing a one-year transition period (January 20, 2026, to January 22, 2027) for existing central organizations to comply with several of the new requirements. Central organizations are exempted from the following requirements during the transition period:

• The requirement to have at least one subordinate organization to maintain the group exemption
• The prohibition on maintaining more than one group exemption letter
• Affiliation and general supervision or control requirements between the central organization and preexisting subordinate organizations and
• The requirement that all subordinate organizations must be described in the same Section 501(c) paragraph as the others^[4]

The IRS has also adopted very broad grandfather rules exempting certain requirements for preexisting subordinate organizations. Preexisting subordinate organizations would not be required to comply with the following:

• The uniform purpose statement requirement
• The prohibition against including Type III supporting organizations in group exemptions
• The requirement that subordinate organizations acknowledge that they may be removed from the group exemption with or without cause

Therefore, preexisting subordinates would remain subject to the prior rules set forth in Rev. Proc. 80-27 and would not have to comply with the more restrictive requirements for subordinates described in the final revenue procedure. Note, however, that new subordinates added by an existing central organization would need to comply with the new requirements.

Special Rules for Churches

Multiple sections in the new revenue procedure address churches and conventions of churches specifically. For example, a church may meet the "affiliated" requirement if a subordinate organization shares common religious bonds or convictions with the central organization. Furthermore, the revenue procedure provides a specific illustration (Section 4.02(5)) for churches with regard to the "general supervision or control" requirement. The example is of a church that is a central organization and that has subordinate organizations that are churches, schools (below college level), and hospitals. The IRS walks through how the supervision or control requirement may be met with regard to each type of subordinate organization.

Filing Deadlines and Automatic Revocation

The final revenue procedure also incorporates new requirements for annual group exemption information update filings and for subordinate revocations. Under the prior revenue procedure, a central organization was required to file its annual group information update at least 90 days before the end of the organization's fiscal year. The final revenue procedure provides nonprofits with additional time to prepare this information by requiring them to submit this information between 90 and 30 days before the close of the fiscal year. Central organizations could also provide additional updates at any time.

Central organizations must continue to provide the following information to the IRS as part of the annual information update: (1) subordinate organizations that have changed their names or mailing addresses during the year; (2) subordinate organizations no longer to be included in the group exemption letter; and (3) subordinate organizations to be added to the group exemption letter. The final revenue procedure adds another requirement that the annual update include a list of subordinate organizations whose tax-exempt status has been automatically revoked.

The annual update must be filed electronically, once the IRS issues guidance for electronic submission. Until the IRS issues this guidance, updates are to be filed via mail.

Under the final revenue procedure, a subordinate organization that has had its exemption automatically revoked and has not been reinstated would no longer be eligible for inclusion in or addition to a group exemption letter, and the IRS can terminate the group exemption letter if more than half of the subordinate organizations have had their tax-exempt status revoked. Accordingly, these new requirements impose more of an administrative burden on central organizations to supervise subordinate organizations to protect the status of their group exemption.

Effective Date of Exemption

The final rule provides that the effective date for a subordinate organization's exempt status will be the date of the subordinate organization's formation, if the subordinate organization is added to a group exemption letter within 27 months of its date of formation.

Major Changes from the Proposed Revenue Procedure

Although the new revenue procedure includes some significant changes to the group exemption rules, it does remove a few proposals that the IRS was previously considering:

1. Foundation classification requirement: The final revenue procedure removes the proposed revenue procedure's requirement that all 501(c)(3) subordinate organizations must be classified as public charities under the same paragraph of Section 509(a).
2. Similar purpose requirement: The final revenue procedure omits the proposed requirement for all Section 501(c) subordinate organizations, except for subordinates recognized as exempt under Section 501(c)(3), to be described by the same National Taxonomy of Exempt Entities (NTEE) Code. However, the IRS achieves a similar result with the final revenue procedure's uniform purpose statement requirement.
3. Uniform governing instrument requirement: The final revenue procedure removes the proposed requirement that all subordinate organizations adopt a uniform governing instrument that must be submitted with the request for a group exemption letter, opting instead for the uniform purpose statement requirement.

What Now?

The final revenue procedure superseded Revenue Procedure 80-27 and went into effect on January 20, 2026. After almost six years of not accepting any requests for group exemption letters, the IRS will finally begin accepting requests now that the new revenue procedure is effective. Central organizations need to familiarize themselves with the new requirements and ensure that they comply with the new rules now and after the one-year transition period.