Group tax exemptions allow a nonprofit organization to share the tax-exempt status of another 501(c)(3) without filing its own separate application. While often used interchangeably, “nonprofit,” “tax-exempt,” and “501(c)(3)” have distinct meanings under the law and different legal obligations. Nonprofit organizations are created under state law but are not automatically tax-exempt from state sales and income taxes without filing for such an exemption through the Franchise Tax Board. Additionally, organizations are given tax-exempt status from federal income tax under federal law, through the Internal Revenue Service.
What Is a Group Tax Exemption?
A group exemption affords the opportunity for a nonprofit organization to share the tax-exemption of another 501(c)(3) without the need for each entity to seek its own tax exemption. The primary advantage is that each subordinate does not have to submit its own IRS Form 1023 application and go through the individual review process. Once a subordinate is legally formed, usually by incorporation, a parent entity that already holds a group exemption letter can simply add the new subordinate to its list of covered organizations and report that addition to the IRS.
To be added to a group exemption, the following conditions generally apply:
- There must be a parent, or central, organization considered the umbrella holder.
- There must be two or more subordinate nonprofits making up the group.
- Each subordinate must be affiliated with the parent organization.
- Each subordinate must be subject to the central organization’s general supervision or control.
- Each subordinate must be exempt under the same paragraph of Internal Revenue Code Section 501(c), though not necessarily the same paragraph under which the central organization itself is exempt.
- Each subordinate must be an independent legal entity with its own board of directors, separate corporate structure, and governance.
The Group Exemption Process: Updated Rules Under Revenue Procedure 2026-8
As of January 2026, group exemption requests are governed by Revenue Procedure 2026-8, which replaced the 45-year-old Revenue Procedure 80-27 that previously controlled this area. The new guidance represents the first comprehensive update to the group exemption program in over four decades, and it introduces meaningfully different requirements from the prior rules.
Under the current rules, a central organization seeking a group exemption letter must:
- Already be recognized by the IRS as tax-exempt, or have an application for recognition pending at the same time it applies for a group exemption.
- Have at least five subordinate organizations to obtain a group exemption letter, and maintain at least one subordinate to keep it in effect.
- Hold only one group exemption letter at a time. Previously, a central organization could maintain multiple group exemption letters; that is no longer permitted.
- File electronically using IRS Form 8940 through Pay.gov, along with a $3,500 user fee and the required supporting documentation, including a description of each subordinate’s activities and a uniform governing instrument.
Central organizations with existing, previously issued group exemption letters are not required to reapply from scratch. However, they have until January 22, 2027 to bring their affiliation, supervision, and control documentation into compliance with the new standards. Organizations that fail to meet the updated requirements by that deadline may be required to remove noncompliant subordinates from their group coverage.
Full details are available directly from the IRS: IRS Group Exemption Resources.
Special Rules for Churches
With limited exceptions, churches are subject to the same general requirements relating to group rulings as other organizations. However, churches and conventions or associations of churches remain exempt from the annual reporting requirement that applies to other central organizations under Revenue Procedure 2026-8 — meaning a denomination overseeing a group of affiliated churches generally does not need to submit the same yearly updates on subordinate changes that other central organizations must file.
Please see our other related articles
What Defines a Church?
Unincorporated Associations
Does Your Church Need to Apply for Tax-Exempt Status? A Decision Guide
Church 501(c)(3) Application: A Guide to IRS Form 1023
Disclaimer: Every situation is different and particular facts may vary thereby changing or altering a possible course of action or conclusion. The information contained herein is intended to be general in nature as laws vary between federal, state, counties, and municipalities and therefore may not apply to any given matter. This information is not intended to be legal advice or relied upon as a legal opinion, course of action, accounting, tax, or other professional services. You should consult the proper legal or professional advisor knowledgeable in the area that pertains to your particular situation.
