For the first time in forty years, the IRS has released new guidance on nonprofit group exemptions.
On January 15th, 2026, the IRS released updated guidance that changes how group tax exemptions operate for nonprofit organizations. The new rules replace guidance that had remained largely unchanged since the 1980s and are intended to modernize oversight and reporting for nonprofits operating within group structures.
What’s changed?
A group exemption allows a central or “parent” organization to hold tax-exempt status on behalf of multiple affiliated nonprofits, often referred to as subordinates or chapters. Under the new guidance, the IRS has clarified and tightened the requirements for both establishing and maintaining these exemptions.
More Oversight
Central organizations are now expected to exercise more active oversight of their affiliates. This includes regularly reviewing their activities and finances and helping ensure ongoing compliance with nonprofit requirements. The IRS has also clarified certain eligibility standards. For example, a central organization must now have at least five affiliated nonprofits to apply for a new group exemption, and all subordinates must be the same type of tax-exempt organization (such as all 501(c)(3)s).
Standardized Reporting
Additionally, the guidance standardizes reporting. Applications for group exemptions and required updates must now be submitted electronically, and central organizations must provide more detailed and ongoing information about their affiliated nonprofits.
Overall, the changes are designed to reduce ambiguity and improve transparency.
Who may be impacted?
The guidance primarily affects nonprofits that participate in a group exemption structure, including national organizations with local chapters, federated nonprofit systems, and associations overseeing multiple legal entities. Central or parent organizations will see the most direct impact due to increased oversight and reporting responsibilities.
Subordinate nonprofits may also be affected, particularly if they are asked to provide additional governance, financial, or operational documentation to their central organization. Nonprofits that hold their own individual IRS determination letters are generally not impacted.
What’s next?
The new guidance raises important considerations around compliance, governance, and administrative responsibilities for nonprofits operating under group exemptions. In the coming weeks, we’ll be sharing additional guidance and resources to help tax-exempt organizations understand the implications of these changes and take informed next steps.
