This issue is seen in HYBRID configurations.
If you have on Premise Exchange 2010 SP3 RU 7 and above and is connecting to Microsoft Exchange Online, the users will not be able to see modern Groups in Outlook 2016 at all.
This happens for 2 reasons:
1. Dirsync is not capable of "Group Writeback". It needs to be upgraded to Azure AD Connect.
2. This group will be represented as a distribution group in on-premises AD DS. Your on-premises Exchange server must be on Exchange 2013 cumulative update 8 (released in March 2015) or Exchange 2016 to recognize this new group type.
Refer: https://azure.microsoft.com/en-us/documentation/articles/active-directory-aadconnect-feature-preview/#group-writeback
Resolution
1. The modern group is a pure cloud based feature. If you point the MX record to the local Exchange server, the group cannot receive any emails from the external senders. It is an expected behavior. To resolve it, we can point the MX record to the Office 365 EOP
2. For Hybrid scenarios where customer has Exchange 2013 , please update the same to latest CU and upgrade to Azure AD Connect for Group writeback
3. For Customer's that have exchange 2010 on premise, ensure that they have upgraded to Azure AD Connect for Group writeback and they need to set the SMTP of the group as name@domain.onmicrosoft.com. This is not going to work on vanity domains. At present, we can use the following PowerShell to manage the primary SMTP address of the modern groups:
Set-UnifiedGroup xxxxx -PrimarySmtpAddress group@domain.onmicrosoft.com (where xxxxxx is group alias name)
to get a list of your Unified Groups:
Get-UnifiedGroup
