Public Charity Can Change State of Domicile and Not Reapply for Exemption
With the issuance of the PLR, the IRS ruled on a tax-exempt organization that is organized as a nonprofit corporation that changed its state of domicile. The organization filed a Certificate of Conversion in its original state of domicile and Articles of Domestication in its new state of domicile. According to the laws of the new state, the organization’s original date of incorporation was not impacted by filing Articles of Domestication. Subsequent to filing with the new state, the organization continued to be recognized as it was under the laws of its previous state of domicile; maintaining the same liabilities and obligations.
The organization which filed the PLR requested a ruling from the IRS that:
- The change in its state of domicile would not be considered a substantial change in its character, purposes, or methods of operations under Treasury Regulation §1.501 (a)-(1)(a)(2);
- The change in its state of domicile would not create a new legal entity which would be required to file a new application for tax-exemption pursuant to Revenue Ruling 67-390; and
- After the change in its state of domicile, it could continue to rely on its original determination of tax-exempt status and would not be required to file a new application for tax-exemption.
In general, Internal Revenue Code (“IRC”) §508(a) provides that new organizations must apply for and request tax-exempt status under IRC §501(c)(3). Historically, prior to this PLR, if a tax-exempt organization reincorporated in a new state, it was treated as if a new legal entity had been formed and was required to apply for a new tax-exempt determination with the IRS. It did not have the protection that the new entity would retain the original entity’s tax-exempt status. With this PLR the IRS has made the distinction between reincorporation and an amendment to an organization’s formation documents. As noted in the PLR, “The change in your state of domicile will not be considered a substantial change in your character, purposes, or methods of operation under Treas. Reg. §1.501(a)-(1)(a)(2) for purposes of reliance on your prior determination of exempt status. However, the changes to your governing documents described in this ruling should be reported on Form 990 as significant changes”.
A copy of the PLR may be accessed online.
Ask Our Experts
Please contact a member of WS+B’s Healthcare Services Group at [email protected] for further questions or assistance.
The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your individual facts and circumstances.
