Internal Revenue Bulletin publication of Revenue Procedure 2026-8 marks a significant shift in the administration of group tax-exempt status under § 501(c). This procedure "modifies and supersedes Rev. Proc. 80-27" and "sets forth updated procedures to obtain recognition of exemption from federal income tax on a group basis". For practitioners, this guidance is the first comprehensive update in over four decades, designed to align the group exemption process with modern electronic filing requirements and more stringent oversight standards.

Rationales for Issuance and Regulatory Objectives

The Treasury Department and the IRS have issued this procedure to address long-standing administrative inefficiencies and data gaps within the group exemption program. Under a strict construction of the regulatory intent, the IRS states the procedure is designed to "reduce the administrative burden and increase the efficiency of the group exemption letter program, improve the integrity of data collected for purposes of oversight... increase the transparency... and increase compliance by central organizations and subordinate organizations".

By providing "greater certainty and clarity" to both central and subordinate organizations, the Service aims to ensure that the "recognition of exemption from federal income tax on a group basis" is applied uniformly and predictably. This update is not merely procedural but reflects a policy shift toward higher accountability, ensuring that organizations exempt under a group ruling are subject to the same rigorous standards as those filing individual applications for recognition of exemption.

Historical Evolution of Group Exemption Procedures

The history of group exemption rulings reveals a long period of relative stasis followed by a sudden freeze. The first published procedures were set forth in Rev. Proc. 68-13, which were subsequently superseded by Rev. Proc. 72-41, Rev. Proc. 77-38, and ultimately Rev. Proc. 80-27. For forty years, Revenue Procedure 80-27 remained the primary authority, only slightly modified by Rev. Proc. 96-40 regarding public inspection requirements.

Recognizing that the old framework was outdated, the IRS issued Notice 2020-36, inviting comments on a proposed revenue procedure intended to modernize the system. Following this notice, the IRS announced it would "not accept applications for group exemption letters on or after June 17, 2020," until the final guidance was published. After processing twenty-nine formal comments, the Treasury Department finalized the current procedure, with the IRS resuming the acceptance of applications after the publication date of January 20, 2026.

Definition of Key Statutory Terms

In analyzing the procedure under statutory construction rules, the definitions provided in Section 3 are foundational. A "central organization" is defined as an "organization described in § 501(c), a political subdivision... or an instrumentality of a political subdivision that has one or more subordinate organizations under its general supervision or control". A "subordinate organization" is characterized as a "chapter, local, post, or unit of a central organization," and it must possess a "governing instrument (for example, a charter, trust indenture, articles of association, etc.), whether or not it is incorporated".

Furthermore, the "annual information return or notice" refers specifically to the Form 990 series, including Form 990, Form 990-EZ, Form 990-N, or Form 990-PF for private foundations. The procedure also introduces the term "supplemental group ruling information" (SGRI), which constitutes the annual reporting requirement a central organization must submit to maintain the group letter.

Mandatory Requirements for Group Exemption Letters

The procedure mandates several general requirements that must be met to obtain a group exemption letter. Primarily, a central organization must be "recognized by the IRS as tax-exempt," have an application pending, or have filed for reinstatement if its status was automatically revoked. In a move to ensure the group exemption is used for its intended purpose of administrative scaling, the IRS now requires that a central organization "must have at least five subordinate organizations to obtain a group exemption letter".

Once obtained, the organization must have at least one subordinate to maintain the letter. Furthermore, a strict "one-to-one" rule is implemented: "A central organization may maintain only one group exemption letter". This prevents the fragmentation of group rulings across multiple paragraphs of § 501(c), although transition periods apply for preexisting letters.

The Standard for General Supervision and Control

The relationship between a central organization and its subordinates is the pivot upon which group exemption turns. Each subordinate must be "affiliated with the central organization" and "subject to its general supervision or control". Affiliation is a factual determination, often demonstrated by the inclusion of a subordinate’s information on a group return or its appearance in an annually updated directory.

The IRS provides a highly technical definition for "general supervision." A central organization meets this standard if it:

"Annually obtains, reviews, and retains information on the subordinate organization’s finances, activities, and compliance with annual filing requirements".
"Annually transmits... written information to, or otherwise educates, the subordinate organization about the requirements to maintain tax-exempt status".

Notably, the Service rules that a copy of a subordinate’s "Form 990-N is not sufficient to satisfy the requirement" to review finances and activities under Section 4.02(3)(a)(i). Alternatively, "control" is established if the central organization appoints a majority of the subordinate’s directors, trustees, or officers, or if the organizations enter into a "written agreement that evidences the central organization’s control over the subordinate organization’s activities and operations".

Eligibility Criteria and Structural Uniformity

To maintain the integrity of the group ruling, the IRS imposes a "matching requirement," stating that "all subordinate organizations under a group exemption letter must be described in the same paragraph of § 501(c)". While subordinates must match each other, they do not necessarily have to be described in the same paragraph as the central organization itself.

Additionally, there is a "uniform purpose statement requirement." Subordinate organizations sharing the same purpose must include a "uniform purpose statement in their governing instruments". If a group includes disparate types of organizations—for example, schools and hospitals—all schools must share one uniform statement, and all hospitals must share another. Furthermore, subordinates included in a group return filed by the central organization "must be on the same annual accounting period as the central organization".

Exclusions from Group Exemption Eligibility

Certain organizations are explicitly barred from inclusion in a group exemption letter. Under the strict terms of the procedure, these include:

Organizations "organized in a foreign country".
Section 501(c)(3) organizations classified as "private foundations under § 509(a)".
Type III supporting organizations.
Qualified nonprofit health insurance issuers under § 501(c)(29).
Organizations that are "automatically revoked" and have not been reinstated.

Procedural Mechanics for Application and Annual Maintenance

All group applications must now be "submitted electronically on Form 8940" via pay.gov, accompanied by the requisite user fees and documentation. The central organization must provide detailed information, including the name, address, and EIN of each subordinate, and representations regarding their affiliation, supervision, and compliance with § 501(c).

To maintain the letter, the central organization must submit SGRI annually, at least thirty days but no more than ninety days before the close of its accounting period. This submission must categorize changes, such as subordinates added, removed, or those that have changed names. The IRS explicitly rules that "an annotated directory of subordinate organizations is not acceptable" for satisfying these annual reporting requirements.

Termination and Removal Processes

The IRS reserves the power to terminate a group exemption letter for several reasons, including the central organization’s failure to "exercise general supervision or control," its own automatic revocation, or if it has no remaining subordinates. Additionally, if "more than half of the subordinate organizations have had their exemptions automatically revoked" or fail the matching/uniform purpose requirements, the entire group letter may be terminated.

A subordinate organization may be removed if it is no longer described in § 501(c), is automatically revoked, or is found to be an ineligible entity type. Central organizations also possess the authority to remove subordinates "with or without cause," provided they give the subordinate at least thirty days’ notice prior to notifying the IRS.

Effective Dates and Transitional Provisions for Preexisting Groups

The procedure is effective as of January 20, 2026. However, it provides a "transition period" ending on January 22, 2027, for preexisting group exemption letters to comply with certain new mandates. During this window, central organizations must ensure they maintain only one group letter and that all preexisting subordinates are properly affiliated and supervised under the new definitions.

If a central organization maintains multiple letters, it must "identify the preexisting group exemption letter it intends to retain" and terminate the others before the transition period expires. Preexisting subordinates are generally exempt from the uniform purpose statement requirement and the prohibitions against Type III supporting organizations, provided they were already included in a group letter on the publication date.

Prepared with assistance from NotebookLM.