Understanding Group Exemptions and Group Returns for Nonprofits

Article | March 05, 2026 | Atchley & Associates LLP

For nonprofit organizations that operate under a central parent or umbrella structure, the IRS offers a streamlined path to federal tax-exempt status known as a?group exemption. Rather than requiring each affiliated subordinate organization to file its own application for recognition of exemption, a central organization can obtain a single group exemption letter that covers all qualifying subordinates.

What Is a Group Exemption?

A group exemption allows a central organization to secure tax-exempt status under Section 501(c) of the Internal Revenue Code on behalf of its affiliated subordinate organizations. To qualify, subordinates must be affiliated with and under the general supervision or control of the central organization. The IRS recently updated the procedures governing this process through?Revenue Procedure 2026-8, which outlines both how to obtain a group exemption letter and how to maintain it on an ongoing basis.

What Is a Group Return?

In addition to group exemptions, qualifying central organizations may also file a?group return?that covers multiple subordinate organizations, rather than each subordinate filing separately. This can significantly reduce the administrative burden for large nonprofit networks.

What Changed Under Rev. Proc. 2026-8?

Effective?January 20, 2026, the IRS has issued updated guidance that reshapes how group exemptions are obtained and maintained. Here is what nonprofit leaders need to know:

Applications Are Resuming

The IRS will resume accepting group exemption applications on January 20, 2026. This is a significant development for organizations that have been waiting to pursue group exemption status.

Eligibility Requirements

To qualify for a group exemption letter under the updated rules, the following conditions must be met:

The central organization must be recognized as tax-exempt or have a pending exemption application.

At least?five subordinate organizations?are required to obtain a group exemption letter; at least one is required to maintain it.

All subordinates must be affiliated with and under the general supervision or control of the central organization.

Subordinates must all be described in the same paragraph of Section 501(c) (for example, all 501(c)(3) or all 501(c)(4)), though they do not need to match the central organization's designation.

Subordinates that share the same purpose must include a uniform purpose statement in their governing documents.

Not eligible for inclusion:?foreign organizations, private foundations, certain supporting organizations, and organizations with previously revoked exempt status.

Annual Reporting Requirements

Central organizations are required to submit annual?Supplemental Group Ruling Information (SGRI)?electronically. This filing must include updates on subordinate organizations, any changes in organizational purpose, and other IRS-required information. Staying current with this obligation is essential to keeping the group exemption letter in good standing.

Effective Date of Exemption for Subordinates

For subordinate organizations formed within 27 months of the group exemption application date, exemption status is retroactive to the date of formation. For those organized outside of that window, exemption is effective from the application date, unless the organization was previously recognized as exempt.

Removal and Termination

Both the IRS and the central organization have the authority to remove subordinates from the group exemption letter. The IRS may also terminate the group exemption letter entirely for reasons such as failure to maintain the required supervisory relationship between the central organization and its subordinates, or failure to meet annual reporting obligations.

Declaratory Judgment Rights

If a subordinate organization wishes to challenge an IRS determination affecting its exempt status, it must file its own action for declaratory judgment under Section 7428. This cannot be done through the central organization on the subordinate's behalf.

Transition Rules

Organizations with preexisting group exemption letters have some breathing room. The IRS has established a transition period, with certain new requirements phased in by?January 22, 2027.

Why This Matters for Your Organization

If your nonprofit operates chapters, affiliates, or other subordinate entities, understanding the updated group exemption rules can save considerable time and resources. However, maintaining a group exemption comes with ongoing responsibilities. The central organization must follow IRS procedures carefully to keep the group exemption letter in good standing, or risk jeopardizing the exempt status of all covered subordinates.

If you have questions about whether a group exemption or group return is right for your organization's structure, our team at Atchley & Associates can help you navigate the requirements and stay in compliance.

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