The IRS recently issued a favorable ruling for nonprofits looking to move their domicile from one state to another. Common reasons that nonprofits seek to change their state of incorporationinclude a change in physical location, increasing regulatory burdens, or a lack of meaningful connection to the original state of incorporation. In such cases,
Prior Law. Historically, exempt organizations were typically forced to file a new exemption application with the IRS whenever they restructured. However, other rulings permitted corporations to retain their employer identification number (“EIN”) for some types of restructuring transactions.
New Guidance. To better align the requirement to obtain a new EIN with the requirements to file new exemption application in restructuring situations, Rev. Proc. 2018-15generally eliminates the need for domestic corporations to reapply for tax-exempt status after a corporate restructuring. However, this new guidance only applies if certain conditions are met. Specifically, the surviving organization will not be required to file a new exemption application if the following conditions are met:
The restructuring organization must:
- be in good standing with the State in its state of incorporation (or formation, in the case of unincorporated associations).
- continue to meet the organizational test of Reg. § 1.501(c)(3)-1(b), including Reg. § 1.501(c)(3)-1(b)(4) (regarding dedication of assets to exempt purposes).
The surviving organization must be:
- a domestic business entity classified as a corporation under Reg. § 301.7701-2(b)(1) or Reg. § 301.7701-2(b)(2).
- carrying out the same purposes as the exempt organization that engaged in the corporate restructuring.
Excluded Transactions. Rev. Proc. 2018-15 does not apply to any corporate reorganization involving a disregarded entity, limited liability company, partnership, or foreign business entity or one in which the surviving organization obtains a new EIN.