IRS Issues Group Exemption Rules

Good news from the Internal Revenue Service (IRS)! On January 20, 2026, the IRS released new rules for group tax exemption holders. Group exemption holders have waited for the new rules for more than 5 years.

The IRS began looking at its rules for group exemption holders in May 2020. The IRS seemed concerned that group exemption holders were not properly managing their chapters or units.

The problem is what the IRS requires when it comes to "supervising" members of the group exemption.

New Rules for Supervising Subordinates

The new rules are contained in Revenue Procedure 2026-8. Here's a short summary of the biggest changes in the 37-page IRS notice. Current exemption holders have until January 22, 2-27 to implement the rules.

1. Parent organizations (the group exemption holders known as "central organizations" by the IRS) must "supervise or control" their group members (known as "subordinates" by the IRS). The term "supervise" is clarified to mean the central organization must review its subordinates' finances and activities each year. To meet this requirement, group exemption holders must:

   a. Collect a copy of each subordinate's IRS Form 990 or 990EZ each year. The new rules say that collecting a 990-N is not enough, but the rules do not say what is needed to review the finances and activities of smaller subordinates that file the Form 990-N. Information does not need to be collected from subordinates that are exempt from filing an IRS 990 information return.

   b. Educate the subordinates every year about IRS requirements to maintain federal tax exemption. Some form of written (may be electronic) information is needed.

2. To obtain federal tax-exempt status by joining a central organization, a subordinate (e.g., chapter or other unit) must:

   a. Follow the same purpose and fall under same 501(c) section (e.g., 501(c)(3) or 501(c)(6)) of all subordinates in the group exemption, including a uniform purpose statement in their Organizing Documents, such as their Articles of Incorporation.

   b. Obtain an EIN (federal employer identification number);

   c. Have an officer sign a written agreement asking to join the group exemption; and,

   d. Agree that the parent may remove the subordinate from the group for any or no reason upon 30 days' notice.

If the parent includes all its subordinates on the same group IRS form 990, the subordinates must all follow the same fiscal year.

Maintaining Group Exemption

Key changes to the requirements group exemption holders must meet to keep their group exemptions are:

1. Ensure members of the group file IRS Form 990 (990, 990EZ or 990N) each year; Group exemption may be revoked if 50% or more of subordinates have their IRS exemptions automatically revoked for failing to file the appropriate IRS Form 990;

2. File the annual group update, now called the Supplemental Group Ruling Information (SGRI) at least 30 days and not more than 90 days prior to the end of the parent organization's fiscal year.

The IRS also is working on a system to allow the SGRI to be submitted electronically in the future. No more hand-marked paper documents!

IRS Accepting Group Exemption Applications

The IRS notice lists requirements for applying for a group exemption. This indicates that IRS is again reviewing applications. Group exemptions may be helpful to larger organizations with multiply chapters or units. Applications are now accepted by the IRS electronically on Form 8940.

"We've long anticipated these new rules. That's why we put systems in place to "talk to the IRS" and make sure the members of the groups we manage are filing their 990s", said Sandra Pfau Englund, CEO of RENOSI, Inc. (Registration for Nonprofits Simplified).

RENOSI manages large group exemption holders such as Parent Booster USA ensuring the compliance of both the central organization as well as its subordinates in the evoling regulartory landscape. For more information on maintaining a group exemption check out our other resources, or schedule a call with one of our experts by sending us an email at [email protected].