New IRS Rules for Group Exemptions: What Nonprofits Need to Know About Revenue Procedure 2026-8

On January 20, 2026, the IRS released Revenue Procedure 2026-8, a long-awaited overhaul of the rules for federal tax-exempt group exemptions. This guidance ends the moratorium on new group exemption applications that has been in place since June 17, 2020, and replaces decades-old rules under Rev. Proc. 80-27.

For national or regional nonprofits with chapters, affiliates, or local units, these changes are significant. They affect both central (parent) organizations and their subordinate organizations that rely on a group exemption letter instead of filing separate exemption applications.

The new rules apply to both new and existing group exemptions, with  a transition period for organizations that already have a group exemption letter.

What Is a Group Exemption?

A group exemption is a ruling the IRS issues to a central organization that recognizes the federal tax-exempt status of multiple related subordinate organizations on a group basis. Instead of each chapter or affiliate filing its own Form 1023 or 1024, the central organization applies once for the group.

The new revenue procedure modernizes how these group exemptions are obtained and maintained, and introduces more defined expectations around oversight and documentation. Subordinates must still share a common exempt purpose and meet the criteria for inclusion in the group.

Key Changes Under Revenue Procedure 2026-8

Revenue Procedure 2026-8 updates and replaces the prior group exemption rules and reopens the door to new group exemption applications. Key changes include:

1. Moratorium Lifted and Applications Restarted

• The IRS paused new group exemption applications as of June 17, 2020 while it reworked the program.
• With Rev. Proc. 2026-8 now final, the IRS will once again accept new group exemption applications on and after January 20, 2026.

2. New Application Process and User Fee

• All new group exemption applications must now be filed electronically using Form 8940 through Pay.gov.
• A user fee applies (currently in the mid-four-figure range); organizations should confirm the latest amount before filing.

3. Minimum Size Requirements

• A central organization must have at least five subordinate organizations to obtain a group exemption letter.
• To maintain the group exemption, the central organization must have at least one subordinate going forward (subject to limited transition relief).
• This is intended to ensure that group rulings are reserved for structures that actually function as networks, not one-off relationships.

4. Only One Group Exemption Letter per Central Organization

• As a general rule, a central organization may maintain only one group exemption letter.
• There is limited transition relief for organizations that already hold multiple group exemption letters under the old rules, but they will ultimately need to align with the “one group ruling” standard.

5. Clearer Standards for Affiliation and Oversight

• The IRS requires that the central organization demonstrate that each subordinate is affiliated with the central organization and subject to its general supervision or control.
• Rev. Proc. 2026-8 provides more detailed definitions and examples of what counts as sufficient affiliation and oversight, such as:
  • Shared purposes and activities
  • Common governance structures or required provisions in governing documents
  • Policies or procedures that subordinates must follow
  • Regular reporting and review of subordinate finances and operations

6. Enhanced Annual Information and Documentation Requirements

• Central organizations must obtain, review, and retain information about each subordinate at least annually.
• In many cases, this may be satisfied by obtaining a copy of the subordinate’s Form 990 or Form 990-EZ if the central organization does not file a group return.
• Subordinates filing Form 990-N (the e-Postcard) do not automatically meet this requirement on their own; the central organization must collect other written information annually.
• The central organization also must maintain an up-to-date subordinate roster with the IRS, adding new subordinates and removing those that cease to qualify.

7. Tighter Rules Around Loss of Exempt Status

• Subordinates that lose their exempt status (for example, through automatic revocation) generally may not remain in or be added to the group exemption until properly reinstated.
• The IRS may terminate a group exemption if more than half of the subordinates lose exempt status.
• Central organizations are expected to monitor subordinate compliance and take corrective action when issues arise.

8. Transition Period

• Existing group rulings generally have one year (into early 2027) to come into full compliance with the new standards.
• Certain requirements are subject to grandfathered provisions for subordinates that remain continuously within the same group exemption, easing the transition in limited cases.

Who Is Affected?

The new revenue procedure affects several types of organizations:

Central (Parent) Organizations

• National or regional nonprofits that already have a group exemption letter and cover subordinate organizations.
• Organizations planning to seek a new group exemption to cover chapters, affiliates, or local units.
• Religious bodies, membership associations, fraternal organizations, youth-serving networks, and others that act as the “central organization” for a network of related entities.

Subordinate Organizations

• Local chapters, affiliates, congregations, or units whose federal tax-exempt status is recognized under a group exemption letter rather than through their own determination letter.
• Subordinates that rely on the central organization to manage IRS reporting, eligibility, and interaction with the group exemption program.

Practical Takeaways for Nonprofits

1. Existing Group Exemptions
   
   If your organization already holds a group exemption letter, consider using the transition period to:

• • Review Rev. Proc. 2026-8 and compare its requirements to current policies and practices.
  • Confirm compliance with minimum subordinate thresholds and identify applicable grandfather rules.
  • Evaluate how affiliation, control, and oversight of subordinates are documented and update governing documents, affiliation agreements and policies to apply consistently across the group.
  • Update internal procedures for collecting and reviewing subordinate financial and programmatic information annually.
  • Determine if any subordinate organizations should be removed from the group.

2. Subordinate Organizations

• • Consider engaging with your central organization about how they will implement the new rules.
  • Expect more formal processes around providing annual information, adopting required policies, and documenting your relationship to the central organization.
  • Understand what could trigger removal from the group or additional IRS scrutiny.

3. New Group Applications
   
   Organizations considering a new group exemption may want to:

• • Confirm that they meet the basic eligibility criteria, including the five-subordinate minimum.
  • Establish governance, affiliation, and oversight structures before filing (e.g., standard bylaws language, affiliation agreements, and reporting requirements for subordinates).
  • Budget time and resources to prepare the electronic Form 8940, pay the user fee, and maintain ongoing compliance.

Next Steps

Revenue Procedure 2026-8 marks a major reset of the IRS group exemption program. Central organizations and subordinates that rely on group exemptions should take stock now, update policies and documentation, and map out a plan to align with the new requirements before the transition period ends.

Lakshmi Sarma Ramani is a Partner and Practice Area Leader at OGC. Lakshmi has over 25 years of significant transactional experience and handles a range of legal matters for privately held companies and exempt organizations.