IRS Finalizes New Group Exemption Rules: What Organizations Should Be Doing in 2026

After more than five years in regulatory limbo, the IRS has finalized and reopened the group exemption letter program, issuing Rev. Proc. 2026-8 to modernize how national organizations obtain and maintain group tax-exempt status.

The IRS has formally reopened and modernized the group exemption letter program. Effective January 20, 2026, Revenue Procedure 2026-8 replaces the decades-old rules that governed how national organizations could obtain and maintain federal tax-exempt recognition for affiliated local entities. The accompanying Notice 2026-8 (dated January 15, 2026) explains how Treasury and the IRS responded to public comments on the 2020 proposal and why certain changes were adopted or rejected.

For religious denominations, trade associations, unions, and other national nonprofits with chapters or local affiliates, group exemption letters remain a valuable administrative tool. But the final rules make clear that the IRS views group exemption only as a conditional administrative accommodation. Centralized exemption will be supported only when centralized oversight can be sufficiently demonstrated to the IRS.

The group exemption application process, which had been paused since 2020, is now open again. That is, potentially qualifying organizations can request for a Group Exemption Letter by submitting Form 8940. To obtain a new group exemption letter, a central organization must generally have at least five affiliated subordinate organizations. The IRS has been explicit that this threshold reflects administrative efficiency concerns and is intended to reserve group exemption treatment for genuine networks, instead of reflecting one-off arrangements.

For organizations that already hold a group exemption letter, 2026 should be treated as a planning and compliance year. The final rules include a transition period that runs through January 22, 2027, but that transition period is not a permanent grandfathering of legacy structures. After it expires, preexisting subordinate organizations will be expected to satisfy the updated affiliation, supervision, and control standards.

Affiliation remains a threshold requirement for every subordinate organization covered by a group exemption letter. Now instead of the previous “entirety of the information” affiliation standard, section 4.02(2) of the final revenue procedure now incorporates a new standard: the all “facts and circumstances showing” the affiliation between the subordinate group and the central organization. The relationship should be real and operational, not merely asserted on paper.

The final rules deliberately retreated from proposals that would have forced uniformity across all subordinate organizations. The IRS did not adopt requirements that subordinates share identical governing documents, identical public charity classifications, or identical program descriptions. As many commenters noted that this does not reflect a true and accurate understanding of certain state law obligations. The IRS instead opted for a narrower and more workable standard. Where subordinate organizations share the same exempt purpose, that purpose should be described consistently in their governing documents. This “uniform purpose statement” approach is designed to promote consistency, without interfering unnecessarily with local governance or state law requirements.

Oversight expectations are also clearer than under prior guidance. A group exemption still requires either general supervision or control by the central organization. Under the general supervision standard, the central organization must engage with subordinate organizations on an annual basis. That includes both reviewing information about their activities and compliance and providing annual education about maintaining tax-exempt status and meeting filing obligations. Electronic delivery of educational materials is expressly permitted.

The final rules recognize that not all subordinates are similarly situated. Where a subordinate files a full Form 990 or 990-EZ, reviewing that return may satisfy the IRS’s expectations. Where a subordinate files only a Form 990-N postcard, the central organization must obtain additional information in some other manner. Where a subordinate is not required to file an annual return or notice at all, as is often the case for churches, the central organization may satisfy its obligation through annual education alone, without collecting financial information. This accommodation was adopted in response to concerns raised by religious organizations and is limited to supervision mechanics; it does not eliminate the affiliation requirement.

Organizations may continue to rely on control rather than general supervision if their structure supports it. The IRS refined the control standards and added flexibility by allowing control to be established through written agreements that give the central organization authority over key activities or operations. This flexibility is particularly relevant for federated organizations, unions, and religious orders whose governance does not follow a traditional corporate appointment model. At the same time, the IRS will evaluate whether those agreements result in actual operational control in substance, not just in form.

Annual reporting remains the backbone of the group exemption program. Central organizations must submit annual updates identifying which subordinates are included, which have been removed, and whether there have been changes affecting the group exemption. The timing window is now more precise. Annual updates must be submitted no earlier than ninety (90) days and no later than thirty (30) days before the end of the organization’s fiscal year. Late or incomplete submissions increase compliance risk, and the IRS has retained discretion to request additional information through future guidance.

The final rules also clarify how subordinate organizations may be added to or removed from a group exemption letter. New subordinates must authorize inclusion in writing, and those authorizations must permit the central organization to remove a subordinate with or without cause, subject to advance notice. Organizations that were already part of a group exemption before the new rules took effect are treated differently, and the IRS did not require wholesale re-authorization of every legacy subordinate. Nonetheless, many central organizations may choose to refresh documentation as a governance and risk-management matter.

Finally, the rules address the effective date of exemption for newly added subordinate organizations. In a welcome change, a newly formed subordinate that is added to an existing group exemption letter within twenty-seven months of formation may generally be treated as tax-exempt from its formation date. Timing rules remain stricter for initial group exemption applications, which makes careful planning important when older entities are involved.

The bottom line is that group exemptions remain valuable, but they now demand intention, structure, and follow-through. Organizations that use 2026 to confirm affiliation relationships, refine oversight practices, and align documentation will be well positioned when the transition period ends in January 2027. Organizations that do not may find that the efficiencies of group exemption are harder to sustain.

One additional set of rules creates practical risk for many existing group exemption letters. All subordinate organizations covered by a group exemption letter must be described in the same paragraph of § 501(c), subject to limited transition relief, which can be a significant issue for legacy groups that historically included both § 501(c)(3) and § 501(c)(4) organizations. The final rules also sharpen the consequences of filing failures: automatic revocation of more than half of a group’s subordinates can trigger termination of the entire group exemption letter, and a preexisting subordinate that is automatically revoked permanently loses its preexisting status if later re-added. Finally, organizations that file a group return should note that the IRS requires a separate EIN issued solely for the group return, distinct from the central organization’s own EIN.

Rev. Proc. 2026-8 also addresses litigation posture under the declaratory judgment provisions of § 7428. It cross-references Rev. Proc. 2026-5 for the general rules on when and how a § 7428 action may be filed court, but it makes one practical point explicit for group exemption structures, as each organization must sue on its own behalf. If the IRS issues a determination affecting a subordinate organization’s initial or continuing qualification or classification, the subordinate organization is the proper plaintiff, not the central organization. This allocation matters when a dispute arises in the group context because it affects who must exhaust administrative remedies, who controls the record, and who bears the cost and risk of litigation.

Conclusion

2026 should be treated as a remediation and alignment year focused on putting durable oversight practices in place. Central organizations should assess whether they can demonstrate, in a concrete way, how they review subordinate activities and filing compliance and how they educate subordinates each year about maintaining tax-exempt status and meeting filing obligations. The IRS has made clear that this education may be delivered electronically, which allows organizations to build standardized materials, training modules, or annual compliance communications that can be updated and reused across the network.

At the same time, organizations should review affiliation relationships and governing documents to confirm that subordinates sharing the same purpose use a consistent purpose statement and that legacy practices still reflect operational reality. Addressing these issues deliberately in 2026 allows organizations to document compliance on their own terms and reduces the risk of having to make rushed structural changes once the transition period ends in January 2027.

More Reading

Rev. Proc. 2026-8; 2026-4 I.R.B. (Jan. 20, 2026).
IRS Notice 2026-8; 2026-4 I.R.B. 368 (Jan. 15, 2026).
IRS Notice 2020-36; 2020-21 I.R.B. 840.

Rev. Proc. 80-27; 1980-1 C.B. 677.