IRS Rules Domesticated Organization Not Required to File New Application for Exemption

The IRS has ruled that in limited circumstances an organization exempt under Section 501(c)(3) and incorporated in state 1 is not required to file a new application for exempt status when it moves its domicile to state 2 by filing articles of domestication in state 2 and articles of conversion in state 1.  In this ruling the laws of both states provide that a domesticated nonprofit corporation is the same corporation that existed under the laws of its original state of incorporation.  The IRS ruled that:

  • The change in domicile is not be considered a substantial change in character, purposes, or methods of operation.
  • The domesticated corporation is not a new entity and therefore is not required to file a new application for exemption.
  • The domesticated corporation may continue to rely on the domesticating corporation’s determination letter.

In its ruling, the IRS stated that it was determinative that under the states’ laws, the domesticated and domesticating corporations were the same corporation, had the same liabilities, and had the same incorporation date. 

This ruling does not change the IRS’s general position that a nonprofit corporation that reincorporates in a new state is a new entity that must file an application for tax-exempt status. It does, however, indicate that under some state laws a nonprofit organization can achieve the same result and avoid filing a new application for exempt status.  This ruling suggests that re-domestication statutes may offer a way to avoid filing a new application for tax-exempt status when an organization wants to change its state of domicile.  However, organizations should carefully review applicable state laws and, in the absence of further guidance, consider filing a ruling request.