Client Alert: IRS Issues New Group Exemption Rules for Nonprofits
This month, the IRS issued new procedures and rules for group tax exemptions after suspending group exemption applications in 2020. The group exemption allows affiliated organizations to operate under a single exemption, eliminating the need for each entity to file its own exempt application.
IRS Revenue Procedure 2026-8 (effective January 20, 2026) replaces prior IRS guidance on group exemption letters and, for organizations currently covered by a group exemption, it is now critical to promptly evaluate whether their group structure and records align with the updated standards.
In particular, central organizations should confirm they have an accurate, current roster of subordinates; verify that each subordinate is properly affiliated with, and subject to the central organization’s general supervision or control; confirm that subordinate organizations covered by a letter fit within the required §501(c) category; and be prepared to take corrective steps—such as updating internal governance/oversight practices, and, where necessary, adding or removing subordinate organizations—within the IRS transition period (which generally runs through January 22, 2027 for preexisting group exemptions).
For organizations interested in obtaining a group exemption going forward, Rev. Proc. 2026-8 also resumes and modernizes the application process, including electronic submission requirements and more detailed information needed about both the central organization and proposed subordinates.
Because the applicable requirements and best path forward can vary significantly based on an organization’s structure and activities (including special rules for churches), we encourage you to contact our Non-Profit Practice Group at lcone@nasonyeager.com for advice on how these updates may affect your specific situation—whether you are reviewing an existing group exemption or considering applying for one—and to address any additional inquiries you may have regarding compliance and ongoing requirements.
Access the Revenue Procedure here.
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