After a wait of nearly six years, the IRS is now accepting group exemption applications for nonprofit organizations with multiple subordinates under a modernized standard and procedure. The old process was paused after forty years of use due to being outdated and inconsistent as well as administratively burdensome. That process has been replaced by new guidance published by the IRS in January 2026. Nonprofits may now apply for new group exemptions, and organizations already holding a group exemption have until January 2027 to make any updates needed to comply with the new regulations.
What is a Group Exemption?
A group exemption allows one “central” or parent organization to apply for tax exemption for their subordinate organizations using a single application rather than submitting separate applications for each entity. This lowers administrative time and expense for preparing and filing these applications. When new subordinate organizations are formed, they are simply added to the existing group instead of filing their own application.
Group exemptions benefit nonprofit organizations with many local chapters such as church denominations, fraternities and sororities or other similar clubs, youth sports programs, and others. A parent organization must have at least five subordinates to qualify for a group exemption.
Updated Group Exemption Requirements
Under the new regulations, subordinates no longer need to be the same type of entity. They only need to qualify for exemption under the same paragraph of Section 501(c). That means that a church denomination can apply for a group exemption that covers all of their churches, schools, and hospitals under one application as all three types are exempt under Section 501(c)(3). However, subordinates that fulfill the same purpose, such as the churches under this denomination, must share the same purpose statement.
Parents and subordinates do not need to qualify for exemption under the same paragraph of Section 501(c). For example, a parent that is exempt under 501(c)(4) as a social welfare organization could have a group of subordinates that are all charities exempt under Section 501(c)(3). The requirement that all subordinates qualify under the same paragraph does not apply to the parent-subordinate relationship.
The updated procedures place additional burdens on the parent organization. A parent organization can only maintain one group exemption. The parent must sufficiently demonstrate affiliation with each subordinate based on all the facts and circumstances to qualify for the group exemption. This can be through various controls over the subordinate’s directors or officers or through a written agreement.
The parent must annually review each subordinate’s finances by reviewing their financial statements or the subordinate’s Form 990. A review of the Form 990-N does not qualify.
Parent organizations must also provide each subordinate with written information about the requirements for maintaining its tax-exempt status and for any annual IRS filing requirements.
Additionally, parent organizations must also continue to file its annual supplemental group ruling information (SGRI) filing. It must be filed between 30 and 90 days before the end of the parent organization’s fiscal year end. Churches or associations of churches are exempt from the SGRI filing requirement.
What’s Next for Nonprofits?
Nonprofits currently under a group exemption have until January 22, 2027, to make any necessary updates to comply with the new regulations. Given the short timeframe, these nonprofits should prioritize reviewing their current relationships to ensure they sufficiently supervise and control the subordinates as well as update any governing documents or written agreements to confirm that purpose statements are uniform and all other requirements of this new regulation are met prior to the deadline.
Nonprofits who are not already under a group exemption can now apply. Group exemptions can be a great tool for large organizations with many subordinates.
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