Easing the Burden on Exempt Organizations' Application for Exemption

The Internal Revenue Service (“IRS”) recently issued Revenue Procedure 2018-15, stating that it will no longer require a new exemption application from a domestic 501(c) organization that changes its corporate formation or place of organization, an action that historically required the filing of a new and properly executed Form 1023. The IRS determined that requiring a new application was often unnecessary and duplicative.

The new guidance reduces the compliance burden on certain exempt organizations. Under the revenue procedure, surviving organizations of corporate restructurings are not required to file a new exemption application if such surviving organization is:

  1. A domestic business entity;
  2. Classified as a corporation (as defined); and
  3. Carrying out the same purposes as the exempt organization that engaged in the corporate restructuring.

The restructuring organization must also be in good standing with the state where it’s incorporated (or formed, in the case of unincorporated associations). Additionally, for 501(c)(3) concerns, the articles of organization of the surviving entity must continue to meet the test regarding dedication of assets to exempt purposes. Finally, the surviving corporation will have reporting obligations that require the submission of information regarding the restructuring that will need to be filed with its Form 990.

For transactions that don’t qualify as corporate reorganization, tax-exempt organizations will need to follow other procedures to apply for a determination letter if they want to continue to be recognized as tax-exempt.

Please contact Schneider Downs’ tax professionals if you have any questions on how this new guidance affects your exempt organization.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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