By Shirlee Walker, Shareholder
Revenue Rule 67-390 makes it clear that “an exempt organization incorporated under the laws of one state” and then “reincorporated under the laws of another state with no change in its purposes” is a new legal entity. This new entity must apply for an exemption and cannot qualify under the old entity’s exempt status. If the new entity does not apply for exempt status, donor contributions will not be deductible and the organization will be required to file Form 1120, U.S. Corporation Income Tax Return. This ruling has been cited in an IRS exemption revocation as recently as 2012.
In 2003, the Advisory Committee on Tax Exempt and Government Entities addressed the requirement to file for a new tax exempt status when an exempt organization relocates to a new state. The committee concluded it would be difficult to ensure that no other changes had taken place in the re-incorporation and recommended no change in the process. The committee did state that a “new” organization reincorporating under these circumstances should be able to obtain a definitive public support ruling based on the financial data of the “old” organization. The committee pointed out that if an exempt organization moves to a new state without reincorporating, the organization is not required to file a new exemption application. In this case, the organization would maintain its incorporation in the old state as a domestic corporation and register in the new state as a foreign corporation.
The American Bar Association (ABA) Section of Taxation asked the IRS to address this issue in the 2012-2013 Treasury-IRS Guidance Priority List. The ABA requested that the IRS provide guidance on how to obtain a revised determination letter without having to file a new exemption application when there is a mere change in the form or state of incorporation. The IRS did not include this issue in the Guidance Priority List.
This brings up another question. Revenue Rule 67-390 is silent on the status of the old corporation’s Employer Identification Number (EIN). Several sources believe the re-incorporated entity is required to obtain a new EIN. Revenue Rule 73-526 indicates that when a corporation re-incorporates in a new state under a section 368(a)(1)(F) type of restructuring, the corporation should continue to use the same EIN. Other rulings have made this same determination where for-profit corporations were involved.
If your tax exempt organization is considering a move from one state to another, please contact Suzanne Severin, Shareholder, or Shirlee Walker, Shareholder to discuss your particular circumstances.
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