Group Exemption Program Restarts

The IRS issued Revenue Procedure 2026-8 to restart acceptance of group exemption applications and update procedures for obtaining and maintaining group exemption letters for subordinate organizations described in Section 501(c). The revenue procedure ends the moratorium that began June 17, 2020, and establishes a transition period for existing group exemptions through Jan. 22, 2027.

Crowe observation

The restart of the group exemption program could present an opportunity for national, statewide, or multientity not-for-profit organizations to centralize exemption and compliance oversight under a single group exemption letter rather than requiring each affiliate to seek recognition individually. In some cases, this structure also can streamline annual Form 990, “Return of Organization Exempt From Income Tax,” reporting through coordinated filing or, when appropriate, a group return.

Background

Prior to June 17, 2020, a central organization could obtain a group exemption letter covering qualifying subordinates that were affiliated and subject to the central organization’s general supervision or control. Subordinates generally did not need to file separate exemption applications if properly included.

Group exemptions commonly are used by national and statewide organizations with chapters, local affiliates, posts, or units and might be relevant for hospital systems and other multientity not-for-profit enterprises with centralized compliance oversight. A recurring compliance risk that can trigger automatic revocation of tax-exempt status for the group lies in ongoing maintenance due to roster changes, varying filing obligations, and subordinate filing failures.

Notice 2020-36 announced that the IRS would stop accepting group exemption applications beginning June 17, 2020.

Revenue Procedure 2026-8

Revenue Procedure 2026-8 largely preserves the traditional group exemption structure while introducing clearer eligibility standards and more structured compliance expectations. Following are highlights of the new procedures:

• Eligibility requirements
  • Generally, only one group exemption letter per central organization is allowed.
  • The group exemption application must include at least five eligible subordinate organizations.
  • Subordinates covered by a group exemption letter must be described in the same Section 501(c) paragraph, but do not have to match the central organization’s paragraph.
  • If subordinates share the same purpose, governing instruments must include a uniform purpose statement for each subordinate category.
  • Certain entities are not eligible to be subordinates, including foreign organizations, private foundations described in Section 501(c)(3), Type III supporting organizations, qualified not-for-profit health insurance issuers described in Section 501(c)(29), and organizations that automatically were revoked and not reinstated.
• Submitting requests
  • Applications now are submitted electronically by filing Form 8940, “Request for Miscellaneous Determination,” through pay.gov, along with required representations for each subordinate.
  • Only central organizations that are recognized as exempt or have filed an exemption application can submit a group exemption application. Each subordinate must have an employer identification number and governing instruments reflecting the group’s purpose, and the central organization must have written authorization from each subordinate for inclusion.
  • The revenue procedure provides exemption effective dates.
  • Additional requirements apply for certain subordinate organizations that are private schools, charitable hospitals, or social welfare organizations.
• Transition issues
  • Group exemption maintenance operates on an annual compliance cycle. Central organizations generally must submit supplemental group ruling information (SGRI) 30 to 90 days before the close of their accounting period and document supervision or control.

Crowe observation

Organizations should align internal calendars to the SGRI reporting window and develop repeatable information collection and retention processes.

• The annual general supervision standard includes annual information collection, review, and education.
• The control standard looks to appointment rights, officer and director overlap, and written control agreements.
• Subordinate organizations included on a group return must share the same annual accounting period as the central organization, which may require tax year realignment.
• If a subordinate is removed, the central organization must provide at least 30 days’ notice before reporting the removal through SGRI.
• By the end of the transition period, which runs through Jan. 22, 2027, central organizations generally must consolidate multiple preexisting group exemption letters and address subordinates that do not meet updated matching requirements.
• Certain new restrictions do not apply to preexisting subordinate organizations during the transition period, including the uniform purpose statement rule and the prohibitions on Type III supporting organizations and Section 501(c)(29) issuers.

Looking ahead

Central organizations should evaluate both their eligibility posture and their compliance infrastructure in light of the revised framework. In the coming year, central organizations should conduct a roster and eligibility review, document supervision or control, and implement a recurring SGRI compliance calendar aligned to the 30-to-90-day reporting window. For many organizations, the more significant work might not be applying for a new group exemption letter but evaluating whether existing oversight practices align with the heightened procedural expectations. While Revenue Procedure 2026-8 does not fundamentally alter the concept of group exemptions, it places greater emphasis on documented supervision, structural alignment, and disciplined annual reporting. Taxpayers should consult their tax adviser to determine how the new guidance affects their situation.