New exemption application not required after change in form or place in corporate restructuring
In a Revenue Procedure, IRS has indicated that it will generally not require a new exemption application from a domestic Code Sec. 501(c) organization that changes its form or place of organization, effective for tax years beginning on or after Jan. 1, 2018.
Background. In the past, IRS has specified in forms and publications that a new exemption application is required if an exempt organization changes its legal structure, such as from a trust to a corporation, or it dissolves in one state and incorporates in another. (Publication 557, Tax Exempt Status for Your Organization (Rev. Jan. 2017) and Instructions for Form 990 Return of Organization Exempt from Income Tax (2016)) These IRS forms and publications also specify that organizations are required to report new significant program services or significant changes in how they conduct program services, and significant changes to their organizational documents, on their Forms 990 rather than in letters to Exempt Organization Determinations.
However, other rules generally provide that in many of these circumstances a new employer identification number (EIN) isn’t required for federal tax purposes. For example, when one corporation merges into another corporation under State law and the latter corporation survives, a new EIN is not required for the surviving corporation. Similarly, a new EIN is not required if a corporation incorporated under the laws of one state reincorporates as a corporation incorporated under the laws of another state. (Rev Rul 73-526, 1973-2 CB 404)
IRS rules for new exemption applications are generally more burdensome than the rules for new EINs described above. Specifically, Rev Rul 67-390, 1967-2 CB 179, and Rev Rul 77-469, 1977-2 CB 196, require new exemption applications in the following cases in which IRS rules generally do not require a new EIN:
- . . . incorporation of an exempt association;
- . . . reincorporation under an Act of Congress; and
- . . . reincorporation of an exempt corporation in a different state.
In addition, IRS has not published guidance on whether a new exemption application is required in the following circumstances in which IRS may not require a new EIN: (a) continuation of a surviving corporation after a statutory merger of exempt organizations; and (b) filing articles of domestication in a different state by an exempt organization.
Requiring a new exemption application after a corporate restructuring often is unnecessary and duplicative because IRS requires exempt organizations to report significant organizational changes on their annual Forms 990. Further, any possible exemption issues with a corporate restructuring are less burdensome for IRS to administer when the surviving organization can continue to use the same EIN on its Form 990 as the restructuring organization.
New guidance. To better align the requirements for new exemption applications with the requirements for obtaining new EINs in common restructuring situations, Rev Proc 2018-15 generally eliminates the requirement for domestic business entities classified as corporations for federal tax purposes to file a new exemption application after a corporate restructuring, if certain conditions are met.
Rev Proc 2018-15 specifies the circumstances under which organizations recognized as exempt under Code Sec. 501(c) are required to file new exemption applications under the same subsection of Code Sec. 501(c) for federal income tax purposes after a corporate restructuring. (Rev Proc 2018-15, Sec. 8)
Rev Proc 2018-15 applies to corporate restructurings of domestic business entities that are classified as corporations under Reg. § 301.7701-2(b)(1) or Reg. § 301.7701-2(b)(2) and are recognized as exempt under Code Sec. 501(a) as organizations described in Code Sec. 501(c). (Rev Proc 2018-15, Sec. 3)
Subject to the requirements and limitations listed below, in the case of a corporate restructuring of such a domestic business entity, the surviving organization will not be required to file a new exemption application to be exempt if such surviving organization is:
- (1) a domestic business entity;
- (2) classified as a corporation under Reg. § 301.7701-2(b)(1) or Reg. § 301.7701-2(b)(2); and
- (3) carrying out the same purposes as the exempt organization that engaged in the corporate restructuring. (Rev Proc 2018-15, Sec. 5.01)
Rev Proc 2018-15, Sec. 5.02, also requires that the restructuring organization (or all restructuring organizations in the case of a statutory merger) must be in good standing with the State in which it was incorporated (or formed, in the case of unincorporated associations).
In addition, if the restructuring organization is exempt under Code Sec. 501(a) as an organization described in Code Sec. 501(c)(3), the articles of organization of the surviving organization must 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). (Rev Proc 2018-15, Sec. 5.03)
Excluded corporate restructurings. Rev Proc 2018-15 does not apply to any corporate restructuring in which (1) the restructuring organization or the surviving organization is a disregarded entity, limited liability company, partnership, or foreign business entity; or (2) the surviving organization obtains a new EIN. (Rev Proc 2018-15, Sec. 5.04)
Reporting requirements. The surviving organization must report the corporate restructuring on any required Form 990 for the applicable tax year. In the case of a domestication or reincorporation in a different State, the surviving organization must also report a change of address as prescribed by the Commissioner. See Form 8822-B; Form 990; https://www.irs.gov/charities-non-profits/other-non-profits/change-of-address-exemptorganizations. (Rev Proc 2018-15, Sec. 6)
Application procedures for organizations not meeting requirements. Surviving organizations that do not meet the requirements of Rev Proc 2018-15, Sec. 5, and that want to be recognized as exempt under Code Sec. 501(a) should refer to Rev Proc 2018-5, 2018-1 IRB 233, which sets out the procedures for applying for a determination letter on exempt status. (Rev Proc 2018-15, Sec. 5.05)
References: For continuity of an organization’s exempt status, see FTC 2d/FIN ¶ D-4002 .