Pay BillFor the first time in more than 40 years, the IRS has issued updated guidance on nonprofit group exemptions. Released on January 20, 2026, Revenue Procedure 2026-8 replaces rules that had been in place since 1980 and introduces new requirements for how group exemptions are obtained, maintained, and reported.
If your nonprofit operates under a group exemption structure, it’s important to begin preparing now. Existing group exemptions must comply with the new requirements by January 22, 2027.
What Is a Group Exemption?
A group exemption allows a central or “parent” organization to hold tax-exempt status on behalf of multiple affiliated nonprofits, commonly called subordinates or chapters. Rather than requiring each affiliate to file its own Form 1023, the central organization applies once and receives a group exemption letter that covers all eligible subordinates. This structure is commonly used by:
- National associations with local chapters
- Faith-based organizations
- Federated nonprofit organizations
- State and national nonprofit networks
While a group exemption reduces administrative work, it also places significant compliance responsibilities on the central organization. Revenue Procedure 2026-8 increases those oversight expectations.
Key Changes Under Revenue Procedure 2026-8
There are several updates nonprofit leaders should be aware of as they evaluate their group exemption status:
- Minimum subordinate requirement. To apply for a new group exemption, a central organization must have at least five subordinate organizations. Existing group exemptions must maintain at least one.
- One group exemption per organization. A central organization may not maintain more than one group exemption letter at a time.
- Stronger oversight expectations. Central organizations must actively review the activities, finances, and compliance of their subordinates. For subordinates that file Form 990-N, the central organization must collect additional written information annually, as a 990-N alone no longer satisfies the oversight standard.
- Expanded definition of “control.” Nonprofit organizations that do not follow a traditional parent-subsidiary model may now establish control through a written agreement, offering more flexibility for alternative governance structures.
- Electronic applications and reporting. All new applications and required annual updates, known as Supplemental Group Ruling Information (SGRI) submissions, must now be submitted electronically through Form 8940 via Pay.gov.
- Written authorization from subordinates. Central organizations must maintain written authorization from each subordinate confirming their agreement to be included in the group exemption and their acknowledgment that the central organization may remove them if necessary.
What Nonprofits Should Do Before the Deadline
The IRS has provided a one-year transition period, but that window is not unlimited. To stay ahead of the January 22, 2027 compliance deadline, central organizations should take the following steps now:
- Confirm that only one group exemption is in place and that subordinate rosters are current
- Review affiliate and chapter governance documents to ensure they support the IRS’s supervision and control expectations
- Collect written authorization agreements from all subordinate organizations
- Establish a consistent annual compliance process, particularly for subordinates that file Form 990-N
- Ensure SGRI filings are submitted within the required window: no earlier than 90 days and no later than 30 days before the end of the accounting period
How BMSS Can Help
BMSS has been working with nonprofit clients since our founding in 1991 and now serves more than 200 organizations across the nonprofit industry. Our team includes Certified Nonprofit Accounting Professionals (CNAP) who understand the unique compliance challenges facing nonprofits, including the implications of Revenue Procedure 2026-8. Whether your organization is evaluating its current group exemption structure, preparing for the 2027 deadline, or considering a new application, we are here to help you navigate the process with confidence.
Please contact Whitney Setnicky today to discuss how these new IRS group exemption requirements may affect your organization and what steps you should take before the January 22, 2027 deadline.