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 incorporation include a change in physical location, increasing regulatory burdens, or a lack of meaningful connection to the original state of incorporation.
Prior Law. Historically, exempt organizations were 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 requirement to file new exemption application in restructuring situations, Rev. Proc. 2018-15 eliminates the need for domestic corporations to reapply for tax-exempt status after a corporate restructuring if certain conditions are met. Specifically, the surviving organization will not be required to file a new exemption application if the following conditions apply:
The restructuring organization must:
- be a corporation or unincorporated association in good standing with the State in its state of incorporation or formation.
- 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.
Notifying the IRS. The surviving organization must report the corporate restructuring on its Form 990 for the applicable tax year. Further, in the case of a domestication or reincorporation in a different state, the surviving organization must also report a change of address on Form 8822-B.