Group Exemptions Are Finally Getting New Guidance After 40 Years

In January of 1980, the Internal Revenue Service (IRS) issued Revenue Procedure 80-27, the IRS’s prevailing authority on group exemptions.  If issued a group exemption by the IRS, a set of affiliated organizations under the general supervision and control of a central organization may receive IRC § 501(c) tax-exempt status as a group. The IRS issued Notice 2020-36 in May of 2020 announcing its intention update the 40-year-old existing revenue procedure.  Reducing the IRS administrative burden, efficiency and transparency increases, data integrity improvements and enhanced compliance related to more than 4,000 group exemptions and 440,000 subordinates were cited as objectives for updating the guidance.  

The IRS has indicated that the proposed revenue procedures outlined in Notice 2020-36 will function as “a comprehensive resource regarding group exemption letters” including new requirements and modifications to current guidance. Several significant changes are identified below.

Subordinate Requirements

The central organization and all of its subordinates must all be exempt under the IRC § 501(c) or all must be an instrumentality or agency of a political subdivision.  The proposed revenue procedure provides that all subordinates described in § 501(c)(3) must be classified as public charities under the same paragraph of § 509(a), except that a group exemption may include both 509(a)(1) and 509(a)(2) organizations. Subordinates classified as a church, educational organization, or hospital may all be included under one exemption.

The primary purpose of each § 501(c) subordinate other than § 501(c)(3) subordinates, must be described by the same National Taxonomy of Exempt Entities code.  

A uniform governing instrument must now be adopted and used for all subordinate organizations with the same charitable purpose that are included in the group exemption.

Group Exemption Limitations and Requirements

The central organization must have at least five subordinate organizations to receive exemption and must maintain at least one subordinate to keep the exemption. Under the proposed revenue procedure, central organizations may only maintain one group exemption letter. Previously, the IRS placed no limit on the number of group exemptions a central organization could have.

Supervision and Control

Subordinates included in a group exemption must be subject to the central organization’s supervision and control.  Notice 2020-36 provides that a subordinate organization is under a central organization’s general supervision if the central organization annually reviews and retains information on the subordinate’s finances, activities, and compliance with annual filing requirements, and sends written notice to the subordinate about the requirements to maintain its tax-exempt status.

Control occurs if the central organization appoints a majority of the subordinate’s officers, directors, or trustees; or a majority of the subordinate’s officers, directors, or trustees serve the central organization in the same capacity.

Organizations Ineligible for Group Exemptions

Private foundations and entities organized in a foreign country are not permitted to be included as a subordinate in a group exemption; however, a domestic subordinate organization may operate in a foreign country. In addition, the following organizations may not be included in a group exemption:

  • Type III supporting organizations;
  • Qualified not-for-profit health insurance issuers described in § 501(c)(29); and
  • Organizations that have had their exemption automatically revoked and have not yet had their exemptions reinstated.

Authorization for Removal from Group Exemption

Subordinate organizations are required to authorize central organizations to include them in the request for group exemption. Going forward, a central organization may remove a subordinate organization from the group exemption letter if the subordinate fails to comply with the requirements of the proposed revenue procedure.  

Maintaining Group Exemption Letters

Central organizations are required annually to submit the Supplemental Group Ruling Information (SGRI) to maintain the group’s exemption. Under the proposed revenue procedure, the SGRI will be required to be submitted at least 30 days before the end of the central organization’s accounting period. A central organization may add new subordinates to its group exemption provided that the central organization complies with new SGRI disclosures.


The proposed revenue procedure will become effective upon publication and will apply to all organizations with group exemptions. A one-year transition period is expected to be provided. Until then, Revenue Procedure 80-27 remains in effect. Grandfather rules will apply in certain situations and will need to be reviewed.

This article lists only certain changes that would affect group exemptions. The full notice can be found by visiting the IRS website at

If you have any questions surrounding group exemptions or how these changes may be applicable to your organization, please contact our tax-exempt experts.

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