What is a Group Exemption?

A group exemption is a way that the IRS recognizes many related, affiliated nonprofit organizations as 501(c) tax-exempt under one central organization. This allows the organizations to share the same tax-exemption.

These organizations are sometimes called umbrella organizations because the parent organization may provide tax-exempt status, resources, and oversight to the smaller organizations under its responsibility and control.

How Group Exemptions Work

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.

  • The central (parent) organization applies for the group exemption.
  • The subordinate organizations (for examples, local chapters or posts of a state-wide parent entity) are included under the central organization’s tax-exempt “family”
  • The central organization is responsible for making sure the subordinates are compliant.

Who Can Use a Group Exemption?

A variety of organizations might qualify:

  • Public charities
  • Churches and religious organizaitons
  • Educational insittuation
  • Business leagues
  • Social clubs

Each subordinate organization must:

  • Be affiliated with the central organization. The subordinate organizations can be chapters, posts, or units of a central organization.
  • Be formally organized. The IRS does not require subordinates to become incorporated, but each one should have an organizing document.
  • Have its own employer identification number (EIN).
  • Under the central organization’s general supervision or control.
  • Not be a private foundation if applying under 501(c)(3).

Special note: Churches must have tax-exempt recognition before applying for group exemption.

How many subordinates do there need to be?

  • New groups: Must have five or more subordinates to apply for the first time.
  • Ongoing groups: Must always maintain at least one subordinate.

How to Obtain a Group Exemption

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

Central organizations applying for tax-exempt status submit the appropriate application form (either Form 1023 or Form 1024) and a letter requesting group exemption. This can happen at the same time as it submits Form 1023 or Form 1024 to receive tax-exempt status.

If the Central Organizations Already Has Tax-Exempt Status

If the central organization has already obtained tax-exempt status, then the central organization must submit a letter requesting group exemption, 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.

If the Central Organization is a Church

If the central organization applying for group exemption is a church, then the church first must obtain recognition of its tax-exempt status before it can apply for group exemption as the central organization.

Letter Requirements

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

  • Proof of the required relationship with the subordinates
  • A sample copy of a governing document for subordinates
  • A description of the subordinates’ purposes, activities, and finaces
  • Statement that each subordinate authorizes its inclusion with the group
  • A list of subordinates, EINs, and addresses
  • Confirmation that no subordinate is a private foundation
  • For schools, extra details specifically for schools

Maintaining Group Exemption

To ensure that the group exemption remains valid, the central organization must:

  • File all required IRS returns and requested information
  • Submit updates 90 days before the end of the fiscal year: names of the subordinates added, removed, or changed
  • Continue to qualify as tax-exempt under section 501(c)
  • IRS Form 990s: the central organization must file its own return (if required) and may file a group return for subordinates. If only some subordinates are included, attach a list of which ones are included.

Recent IRS Updates – Group Exemptions – Important 2026 Updates

In January 2026, the IRS resumed accepting group exemption applications after a five year pause. In 2020, the IRS stopped reviewing group exemption applications while it reviewed its procedures. See Revenue Procedure 2026‑8 and IRS Notice 2020-36.

This means that central organizations can once again apply to have their related organizations recognized as tax-exempt.

Several updates in this new Revenue Procedure for both new and existing group exemption letters:

  • Online Filings. All new group exemption requests must be filed online using IRS Form 8940 through Pay.gov.
  • Minimum Number of Subordinates. A central entity must have at least five subordinates. After that first period, there group must have at least one subordinate to remain active.
  • Only one group exemption letter at a time.
  • Supervision & Control. The new rules clarify how the central organization must provide supervision of its subordinates.
  • Tax-Exempt Type – 501(c) category. All subordinates must be the same 501(c) type, but they do not need to match the central organization’s type. Example: A 501(c)(6) professional association could be the central organization, while all subordinates are 501(c)(7) social clubs.
  • Same Purpose & Accounting Periods. Subordinates with the same mission must include it in their governing documents. If included in a group return, subordinates must also share the same accounting period as the central organization.
  • Compliance. Organizations with existing group exemption letters have until January 22, 2027 to comply with the new rules. This may include adding subordinates, updating policies, or improving oversight. Failing to comply could end the group exemption, and each subordinate would have to apply for tax-exempt status separately.

Compliance Reviews for All Existing Groups by Jan. 22, 2027

We recommend that existing groups should start compliance reviews to ensure they are meeting updated IRS requirements. By January 22, 2027, they might need to:

  • Update names of subordinates
  • Update policies and compliance procedures
  • Show how they supervise and control their subordinates

Resources on IRS Group Exemption Rules

IRS: Group Exemption Options and Group Returns

Need Legal Help?

The Cullinane Law Group works exclusively with tax-exempt organizations, including dozens of group exemptions across the United States.

Whether you’re navigating IRS rules or your organization’s governance, we can help. Contact us for help with your group exemption.