IRS Group Exemption Modernization: New Rules for Nonprofits with Chapters and Affiliates
After a hiatus of more than five years, the Internal Revenue Service released Revenue Procedure 2026-8 (RP 2026-8) on January 20, 2026, setting forth new guidance and requirements for group exemptions . The new rules add significant compliance requirements for nonprofits with chapter and affiliate networks.
What Is a Group Exemption?
An IRS group exemption allows a tax-exempt “central organization” to establish tax-exempt status for its affiliated “subordinate” organizations without the subordinate organizations having to apply individually for IRS recognition of exempt status . The IRS maintains more than 4,000 group exemptions providing exemption to more than 400,000 subordinate organizations .
New Requirements for Central Organizations
Under the new rules, a central organization must :
Have at least five subordinate organizations to obtain a group exemption
Maintain at least one subordinate at all times
Maintain only one group exemption letter (transition relief applies to existing letters)
New Definitions for Affiliation, Supervision, and Control
RP 2026-8 introduces new definitions for key terms :
Affiliation is now determined by a “facts and circumstances” standard looking at the relationship between the central and subordinate organization .
General Supervision requires the central organization to annually obtain, review, and retain information on the subordinate organization’s finances, activities, and compliance with annual filing requirements; and annually transmit written information to, or educate, the subordinate organization about requirements to maintain tax-exempt status . A central organization may satisfy the first requirement by obtaining a copy of a subordinate organization’s Form 990 or 990-EZ—but Form 990-N does not satisfy the requirement .
Control exists if the central organization appoints a majority of voting directors or officers, or there is a majority overlap of directors or officers, or there is a written agreement evidencing control .
New Requirements for Subordinate Organizations
To qualify as a subordinate organization, organizations must now satisfy :
A uniform purpose statement requirement—all subordinate organizations that share the same purpose must have a uniform purpose statement in their governing instruments
Authorization for inclusion—each subordinate must authorize, in writing and signed by an officer, the central organization to include it in the group exemption and to remove it with or without cause
501(c)(4) subordinates must submit Form 8976, Notice of Intent to Operate Under Section 501(c)(4)
Prohibited Subordinate Types
The following organizations are not eligible to be included in a group exemption :
Organizations organized in a foreign country
Private foundations
Type III supporting organizations (previously eligible)
Organizations whose exemptions have been automatically revoked for failure to file Form 990
Certain nonprofit health insurance organizations
Special Rules for Churches
Multiple sections in the new revenue procedure address churches specifically . A church may meet the “affiliated” requirement if a subordinate organization shares common religious bonds or convictions with the central organization . The revenue procedure provides a specific illustration for churches with subordinate organizations that are churches, schools, and hospitals, walking through how the supervision or control requirement may be met for each type .
Transition Relief and Deadlines
The IRS is providing a one-year transition period (January 20, 2026, to January 22, 2027) for existing central organizations to comply with several new requirements . Preexisting subordinate organizations are grandfathered from the uniform purpose statement requirement, the prohibition against including Type III supporting organizations, and the authorization requirement .
Annual Reporting and Filing Deadlines
The final revenue procedure also incorporates new requirements for annual group exemption information update filings . Central organizations must submit Supplemental Group Ruling Information (SGRI) at least annually, reporting changes in subordinate organizations . The annual update must be filed electronically once the IRS issues guidance for electronic submission .
Practical Steps for Affected Organizations
Central organizations should take immediate steps to :
Inventory all subordinate organizations
Confirm consistent Section 501(c) classification
Document supervision and control arrangements
Prepare for enhanced annual reporting before the January 2027 deadline
Develop or update uniform purpose statements for subordinates sharing the same purpose
Obtain written authorization from each subordinate for inclusion and removal
At Nova Tax & Accounting Services , we help nonprofit organizations navigate these new group exemption requirements. Our assurance and compliance services include guidance on maintaining group exemption letters. Schedule your free consultation to discuss your organization’s compliance needs.