IRS Issues Guidance Regarding Group Exemption Letters

On January 16, the IRS released two documents – Notice 2026-8 and Rev. Proc. 2026-8 – which provide updated guidance for organizations regarding group tax exemptions.

The guidance also removes the 5+ year moratorium on new exemption rulings. The guidance modifies and supersedes Rev. Proc. 80-27, and incorporates updates from the 2020 notice (Notice 2020-36). Central organizations and those of their subordinates that are included in the group exemption will generally have one year to come into compliance with the updated guidance. Under IRS Treasury regulations and related guidance, specifically regarding group exemption letters, a central organization is defined as the head or parent organization that holds a group exemption letter and exercises general supervision or control over one or more subordinate organizations. A subordinate organization is defined as a "chapter, local, post, or unit of a central organization".

In terms of the requirements, central organizations will want to check to make sure they have at least five subordinates and a single group exemption. Rev. Proc. 80-27 requires that subordinates are affiliated with the central organization and under its general supervision or control. The 2026 guidance provides further detail as to what is needed to meet these requirements (as Rev. Proc. 80-27 did not provide much in terms of details). Below are details on each of these components. Note that the guidance requires that the central organization satisfy general supervision OR control, not both.  While general supervision requires more from an annual process perspective to the extent the governance requirements pose an issue, that option may be preferable.

Affiliation

A subordinate organization’s affiliation with the central organization is demonstrated by the facts and circumstances of the relationship, showing that it is a chapter, local, post, or unit of the central organization. For example, a subordinate organization may demonstrate its affiliation with a central organization by the inclusion of its information on a group return, or the current inclusion of the subordinate organization in a directory of subordinate organizations updated annually by the central organization.

General Supervision

A subordinate organization is subject to the general supervision of a central organization if the central organization: (i) annually obtains, reviews, and retains information on the subordinate organization’s finances, activities, and compliance with annual filing requirements; and (ii) annually transmits (including electronically) written information to, or otherwise educates, the subordinate organization about the requirements necessary to maintain it’s tax-exempt status under the applicable paragraph of § 501(c), including, but not limited to, annual filing requirements, if applicable. A central organization can comply with item (i) by obtaining a copy of each subordinate organization’s Form 990. For item (ii), a central organization could meet this by, for example, building into its educational process a module on compliance with requirements to maintain tax exemption.

Control

A subordinate organization is subject to the control of a central organization if: (a) the central organization appoints the subordinate organization’s directors or trustees, who possess a majority of the voting power with respect to the subordinate organization’s governance; (b) the central organization appoints a majority of the subordinate organization’s officers; (c) the subordinate organization’s directors or trustees possessing a majority of the voting power with respect to the subordinate organization’s governance, or  are directors or trustees of the central organization; (d) a majority of the subordinate organization’s officers are officers of the central organization; or (e) the central organization and the subordinate organization enter into a written agreement that evidences the central organization’s control over the subordinate organization’s activities and operations. For example, the written agreement may contain provisions that describe an alternative governance structure in which the central organization must approve the election of the subordinate organization’s directors or has the right to remove directors at any time with or without cause. Alternatively, the central organization may enter into a management agreement with the subordinate organization giving it direct control over the subordinate organization’s activities and operations.

Additional Points

• The annual update (known as the supplemental group information ruling or “SGIR”) needs to be filed at least 30, but no more than 90, days before the close of the central organization’s annual accounting period. Updates can be provided at any time. The Revenue Procedure provides details regarding the information to be included in the SGIR. To the extent there are no changes to report, the SGIR would contain a statement to that effect. The SGIR will need to be submitted electronically. Future guidance is forthcoming regarding that process. In the event the guidance is not published prior to the deadline, the Rev. Proc. provides the address for the filing.
• All subordinates must be exempt under the same sub- section of 501(c).
• Transition Period: Organizations will need to come into compliance with the requirements by February 22, 2027.

There are additional requirements and guidance, including processes for adding new subordinates, which would need to be considered in the event of an acquisition or other changes. Should you have any questions regarding the updated guidance, please contact one of the authors or your usual EBG attorney.