IRS proposed revenue procedure would modify group ruling requirements

May 08, 2020
May 08, 2020
0 min. read

Notice 2020-36 contains proposed procedures for group exemptions.

After 40 years of following the same group exemption procedures, the IRS released a new proposed revenue procedure in Notice 2020-36. It would supersede existing Rev. Proc. 80-27 and modify the requirements and procedures to obtain and maintain a group tax exemption. 

The IRS will temporarily cease accepting new group exemption requests on June 17, 2020 until the final revenue procedure is published in the Internal Revenue Bulletin.


Recognition of exemption from federal income tax for organizations described in section 501(c) may be obtained through a group exemption process by which a single “central organization” obtains the authority from the IRS to determine whether “subordinate organizations” are exempt from tax. The process for obtaining and maintaining a group exemption is currently set forth in Rev. Proc. 80-27 but contains ambiguity regarding the required relationship between the central and subordinate organizations. 

In 2011, the Advisory Committee on Tax Exempt and Government Entities (the ACT) focused its annual comments on issues surrounding the group exemption process. In 2019, Treasury and the IRS added to the Priority Guidance Plan an item to revise Rev. Proc. 80-27.

Significant changes

In addition to incorporating statutory changes, the proposed revenue procedure includes significant changes to the group exemption process for exempt organizations:

  • Definitions.
    • General supervision. A subordinate organization is subject to the central organization’s general supervision if the central organization annually obtains, reviews, and retains the subordinate organization’s finances, activities, and annual filing requirement compliance, and educates the subordinate organization about the requirements to maintain tax-exempt status.
    • Control. A subordinate organization is subject to the central organization’s control if the central organization appoints a majority of the subordinate organization’s officers, directors, or trustees; or a majority of the subordinate organization’s officers, directors, or trustees are officers, directors, or trustees of the central organization.
  • Minimum number of subordinate organizations. A central organization must have at least five subordinate organizations to obtain a group exemption letter and at least one subordinate organization to maintain its group exemption. 
  • Number of group exemption letters. A central organization may maintain only one group exemption letter.
  • New requirements for subordinate organizations. 
    • Matching. All subordinate organizations must be described in the same paragraph of section 501(c) as the central organization. For example, if the parent is a section 501(c)(3) organization, its subordinate organizations must also be described in section 501(c)(3).
    • Foundation classification. If described in section 501(c)(3), all subordinate organizations must be classified as public charities under the same paragraph of section 509(a). 
    • RSM observation: Although the proposed revenue procedure does not require subordinate organizations to be described in the same paragraph of section 170(b)(1)(A) as one another, the Notice suggests that the IRS is considering eventually imposing this requirement. Such an imperative could have a significant impact on existing group exemption rulings for academic medical centers and religious groups with a variety of charitable organizations.
    • Similar purposeAll subordinate organizations, other than those described in section 501(c)(3) must have the same or similar purposes.
    • Uniform governing instrument. All subordinate organizations must adopt a uniform governing instrument.
  • Ineligible organizations. Section 501(c)(3) organizations classified as Type III supporting organization under section 509(a)(3) and qualified nonprofit health insurance issuers (QNHII) described in section 501(c)(29) are not eligible for inclusion in a group exemption letter as a subordinate organization.
  • Supplemental group ruling information (SGRI). Central organizations, other than churches, must submit annual updates regarding subordinate organizations at least 30 days before the end of the central organizations’ tax year.


The proposed revenue procedure generally will apply to group exemption letters requested and issued after the final revenue procedure is published. Transition rules apply to preexisting group exemption letters, including a one year transition period for the requirements that a central organization have at least one subordinate organization to maintain a group exemption letter and maintain only one group exemption letter. 

With limited exceptions, the proposed revenue procedure will apply to new subordinate organizations added to an existing group exemption letter and to subordinate organizations already included in the group ruling. Those exceptions include the following not applying to existing subordinates:

  • the revised definitions of “general supervision” or “control”
  • the matching, foundation classification, similar purpose, and uniform governing instrument requirements
  • the exclusion of Type III supporting organizations

Request for comments

The IRS requests public comment on all aspects of the proposed revenue procedure on or before Aug. 16, 2020, particularly with respect to the following:

  • The administrative burden imposed by the collection of information regarding a central organization’s general supervision of its subordinate organizations and the information a central organization must provide to the IRS to obtain a group exemption ruling 3.05, and 6 of the proposed revenue procedure,
  • Factors indicating that a subordinate organization is affiliated with a central organization (description of “affiliation”), and
  • Whether central organizations with multiple preexisting group exemption letters would benefit from procedures permitting the consolidation or transfer of one or more preexisting group exemption letters.

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