What is Group Exemption?

Group exemptions are a way that similar organizations can share the same tax-exempt status. These organizations are sometimes called “umbrella organizations” because the parent organization may provide resources and/or identity to the smaller organizations under its responsibility and control.

In short, the IRS will allow organizations that are affiliated with a central organization to apply for tax-exempt status as a group. This not only saves time for the organizations applying, but it also relieves the IRS of reviewing each subordinate organization’s application for tax-exempt status. In this way, the central (parent) organization takes responsibility for the subordinate organizations.

What types of organizations can apply for group exemption?

A variety of organizations — from public charities to churches to social clubs — can apply for group exemption. The main qualifying factor is that the central organization and the subordinate organizations must have a defined relationship.

Subordinate organizations can be chapters, posts, or units of a central organization. The IRS does not require subordinates to become incorporated, but each one should have an organizing document. However, a subordinate organized and operated in a foreign country cannot be included in a group exemption letter.

The IRS spells out specific requirements for subordinate organizations. Each subordinate group must be:

    • Affiliated with the central organization;
    • Subject to the central organization’s general supervision or control;
    • Exempt under the same paragraph of IRC 501(c), though not necessarily the paragraph under which the central organization is exempt;
    • Not private foundations, if the application for a group exemption letter involves section 501(c)(3); and
    • All on the same accounting period as the central organization if they are to be included in group returns.

A central organization can also be a subordinate of a larger organization. For example, a state organization may be a subordinate of a national organization, but it can be the central organization for the chapters located within the state.

Must the central organization obtain tax-exempt status before applying for a group exemption?

For most nonprofit organizations, the central organization can submit the request for group exemption at the same time as it submits Form 1023 or Form 1024 to receive tax-exempt status.

However, the rule is different for churches. The central organization applying for tax-exempt status as a church must obtain recognition of its tax-exempt status before it can apply for group exemption as the central organization.

Does each subordinate need an Employer Identification Number (EIN)? 

Yes, each subordinate must obtain an EIN — even if they have no employees.

What is the process for obtaining a group exemption letter? 

The process for obtaining group exemption varies depending on the type of central organization and whether the central organization has already obtained tax-exempt status.

Central Organizations Applying for Tax-Exempt Status for the First Time

Central organizations applying for tax-exempt status submit the appropriate application form (either Form 1023, 1024, other) and a letter requesting group exemption (see below).

Central Organizations with Tax-Exempt Status who now want Group Exemption

If the central organization has already obtained tax-exempt status, then the central organization must submit a letter requesting group exemption (see below), and include the central organization’s EIN, the date of the letter recognizing its own exemption, and a copy of any amendments to its governing instruments or internal regulations. If the central organization has made any changes to its character, purposes or method of operation, then these changes must be sent to the IRS as well.

Letter Requesting a Group Exemption

The central organization submits a letter to the IRS on behalf of itself and its subordinates. The letter must include the following information:

      • Information verifying the existence of the required relationship;
      • A sample copy of a uniform governing instrument adopted by the subordinates;
      • A detailed description of the purposes and activities of the subordinates including the sources of receipts and the nature of expenditures;
      • A statement that each subordinate to be included in the group exemption letter has furnished written authorization to the central organization;
      • A list of subordinates to be included in the group exemption letter to which the IRS has issued an outstanding ruling or determination letter relating to exemption;
      • If the application for a group exemption letter involves IRC 501(c)(3), an affirmation that no subordinate to be included in the group exemption letter is a private foundation;
      • For each subordinate that is a school claiming exemption under IRC 501(c)(3), the information required by Rev. Proc. 75-50, 1975-2 C.B. 834 and Rev. Rul. 71-447, 1971-2 C.B. 230; and
      • A list of the names, mailing and actual addresses, and employer identification numbers of subordinates to be included in the group exemption letter.

What is required to ensure that the group exemption letter remains valid?

To ensure that the group exemption remains valid, the following conditions must be met:

      • The continued existence of the central organization.
      • The continued qualification of the central organization for exemption under section 501(c).
      • The submission by the central organization of the information required annually.
      • The annual filing of an information return (Form 990, for example) by the central organization if required.

Additionally, subordinates must continue to follow the requirements for subordinates by the central organization to be included in a group exemption letter, must continue authorization for inclusion, and must submit any required annual information return on behalf of the subordinate.

What are the reporting requirements for organizations with a group exemption?

The central organization must submit at least 90 days before the close of its annual accounting period all of the following information each year:

      • Information about all changes in the purposes, character, or method of operation of the subordinates included in the group exemption letter.
      • A separate list (that includes the names, mailing addresses, actual addresses if different, and EINs of the affected subordinates) for each of the three following categories.
          • Subordinates that have changed their names or addresses during the year.
          • Subordinates no longer to be included in the group exemption letter because they no longer exist or have disaffiliated from or withdrawn their authorization to the central organization.
          • Subordinates to be added to the group exemption letter because they are newly organized or affiliated or because they have recently authorized the central organization to include them.
      • If subordinates are added, then the central organization must also submit items from the original letter requesting the group exemption for the subordinates added. If items 1 through 4 are similar for the new subordinates, then a statement to that effect can be submitted instead.

Does the central organization submit an annual return on behalf of all the subordinates?

The central organization must file its own separate return. It may also file a group return on behalf of some or all of its subordinates. If a central organization only files on behalf of some its subordinates, it must attach a list of the subordinates included in the return.


As of June 2020, the IRS paused requests for group exemption letters. That it, the IRS is currently not examining any group exemption applications. Instead, the IRS is reviewing its procedures on how to grant group exemptions in the future. Current group exemptions are secure, but the procedure may change for future group exemptions. See IRS Notice 2020-36 for more details.

Because of this pause, it is important to work with an attorney who works exclusively with tax-exempt organizations and the IRS. As group exemption are sophisticated and complex structures, we strongly recommend working with an attorneys who specializes in tax-exempt matters.


IRS web pages providing information on group exemptions and group returns:

Group exemptions

Group returns – exempt organizations

IRS: Publication 4573 – Group Exemptions

IRS: Publication 557 – Tax-Exempt Status for Your Organization

Want some from an attorney who specializes in tax-exempt matters like group exemption?

The Cullinane Law Group is a law firm that works exclusively with tax-exempt organizations, including dozens of group exemptions throughout the United States. Contact us for help with your group exemption.