What Nonprofits Need to Know About the IRS’s New Group Exemption Rules

Estimated reading time: 12 minute(s)

The IRS has officially reopened its Group Exemption program. Revenue Procedure 2026-8 introduces new procedures, tighter oversight standards, and updated compliance requirements for central organizations and their subordinate affiliates.

For nonprofit organizations, this update marks an important shift in how group exemptions are obtained and maintained.

What is Group Exemption?

A group exemption letter allows a central organization to obtain federal tax-exempt recognition on behalf of multiple subordinate organizations under Internal Revenue Code 501(c). Rather than each subordinate filing its own 1023 or 1024, the central organization applies once and covers eligible affiliates under its group ruling.

Churches, school systems, national nonprofit networks, and membership-based organizations with local chapters commonly use this structure.

The Program Reopens with New Rules 

The IRS suspended new group exemption applications in 2020 to reassess and modernize the process. As of January 2026, the agency is once again accepting applications under Revenue Procedure 2026-8.

Key Changes Under Revenue Procedure 2026-8

1. Electronic Filing Is Now Required 

All group exemption applications must be submitted electronically using Form 8940 through Pay.gov. This shift aligns the group exemption process with broader IRS digitization efforts.

2. Minimum Number of Subordinates 

To obtain a group exemption letter, a central organization must now include at least five subordinate organizations at the time of application.

After approval, the group must maintain at least one subordinate to keep the group exemption active.

3. One Group Exemption Per Central Organization

Under the new guidance, a central organization may hold only one group exemption letter. While certain transition rules apply to preexisting arrangements, organizations can no longer maintain multiple group rulings moving forward.

4. Clearer Standards for Supervision and Control

The IRS expanded its explanation of what it means for subordinates to be affiliated with and under the general supervision or control of the central organization.

Expectations now include:

• Governance oversight 
• Financial accountability
• Organizational reporting mechanisms
• Structural or operational consistency

This clarification reinforces that group exemptions are not merely administrative tools. They require active oversight by the central body.

5. Subordinate Eligibility Requirements 

All subordinate organizations included in a group exemption must: 

• Be described under the same paragraph of IRC 501(c) as each other
• Share consistent purposes among similarly situated subordinates
• Operate on the same annual accounting period if filing a group return

These requirements promote uniformity and simplify compliance monitoring.

6. Annual Supplemental Reporting (SGRI)

A significant addition to the compliance framework is the requirement for central organizations to submit Supplemental Group Ruling Information (SGRI) annually.

This report updates the IRS on:

• Changes in subordinate status
• Additions or removals of affiliates 
• Organizational updates impacting the group exemption

The annual SGRI requirement is designed to improve transparency and ensure IRS records remain accurate.

Transition Period for Existing Group Exemptions

Organizations operating under older rulings are not expected to overhaul their structure immediately. The IRS has provided a transition period (generally extending into 2027) for preexisting groups to align with new standards. That said, central organizations should proactively review their governance practices and subordinate relationships to ensure compliance before the transition deadline.

Practical Takeaways for Nonprofit Leaders 

If your organization is considering applying for a group exemption in 2026 or beyond:

• Confirm you meet the five-subordinate minimum
• Establish documented supervision and control procedures 
• Prepare for electronic filing via Form 8940
• Budget for the applicable user fee
• Develop an internal process for annual SGRI reporting 

If you already operate under a group exemption, now is the time to conduct a compliance review and prepare for the transition requirements.

What This Means for Your Organization

By reopening the application process while strengthening oversight standards, the IRS has modernized a long-standing mechanism that many nonprofit networks rely upon.

Organizations that approach the new framework strategically will be well-positioned to take advantage of the reopened program while maintaining long-term compliance.

Discover more nonprofit resources!