Late last year, the Internal Revenue Service (“IRS”) issued a letter ruling, PLR 201446025, providing that, in certain instances, a nonprofit corporation exempt under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, and incorporated in State A was not required to file a new application for tax-exempt status (IRS Form 1023) when it changed its domicile to State B by filing “Articles of Domestication” in State B and “Articles of Conversion” in State A.
In the ruling, the law of State B stated that the corporation’s filing of “Articles of Domestication” would not affect its original incorporation date. The law of State B also stated that the corporation would be considered the same corporation as the one that existed under the laws of State A, the state in which the corporation was previously domiciled. Similarly, the governing law of State A stated that following the corporation’s filing of “Articles of Conversion,” the corporation would continue to exist without interruption and be able to maintain its same liabilities and obligations.
The change in domicile did not affect the corporation’s charitable purpose or operations.
The following five points were integral to the IRS’s ruling:
- the nonprofit corporation was not altering its basic organizational form;
- the nonprofit corporation was filing an amendment to its formation document, rather than filing a new one;
- both states involved had laws providing that a domesticated nonprofit corporation would be the same corporation that existed under the laws of its original state of incorporation (Indeed, the IRS noted that its ruling would be different if a new corporation were created in State B and the nonprofit corporation merged into it or transferred assets to it);
- the nonprofit corporation had the same liabilities to the IRS and others as it had before its change in domicile; and
- the nonprofit corporation maintained the same incorporation date.
This ruling does not change the IRS’s position that a nonprofit corporation that reincorporates in a new state is a new entity that must file a new application for tax-exempt status. In fact, the ruling makes clear that if a nonprofit corporation’s submission of “Articles of Domestication” to change its state of domicile causes it to become a new organization, then the corporation may not rely on its prior tax-exemption recognition and must file a new application for tax-exempt status. If such change of domicile does not cause the corporation to become a new organization, however, then the corporation may rely on its previous recognition of tax-exempt status and does not need to file a new application for tax-exempt status.
Although the ruling may not be used or cited as precedent, it seems to suggest that, depending on state law, a nonprofit, tax-exempt corporation can, in fact, reincorporate in a new state without filing a new application for tax-exempt status. If a corporation wants to change its state of domicile without filing a new application for tax-exempt status, it must first ensure that the new state has a domestication statute that provides that the corporation would be the same as the initial corporation.
Organizations seeking to change state of domicile should take great care to understand the relevant state laws and realize that, in many cases, a new application for tax-exempt status may still have to be filed. As always, changes to an organization’s governing documents should be reported on IRS Form 990 as significant changes.