The IRS has provided guidance that will allow domestic organizations exempt under Code Sec. 501(c) to change their form or state of organization without reapplying for exempt status. Eight examples are provided for added clarity.
Material Change of Facts
Rev. Proc. 2018-5 describes the requirements for obtaining an exempt status determination. In Section 11.02 states that an exempt status determination may no longer be relied upon if there is a material change of facts, inconsistent with exemption, in the character, purpose, or method of operation of the organization. Also, significant changes to programs, services, or the organizational documents are required to be reported on organizations’ Forms 990.
Effective January 1, 2018, the restructuring of a domestic entity that is:
- classified as a corporation under Reg. §301.7701-2(b)(1) or (2); and
- recognized as exempt under Code Sec. 501(a) as an organization described in Code Sec. 501(c),
will not be required to file a new application for exemption from tax for the surviving organization if the surviving entity is carrying out the same purposes as the exempt organization had been before the restructuring.
In addition, the organization must be in good standing with the state in which it is incorporated or formed (if an unincorporated association). Moreover it must continue to satisfy the organizational test described in Reg. §1.501(c)(3)-1(b).
This updated procedures does not apply to corporate restructurings in which the resulting organization is a:
- disregarded entity,
- limited liability company,
- foreign business entity,
- or when the surviving entity obtains a new employer identification number.
Any such surviving entity that desires exempt status under Code Sec. 501(a) must apply following the procedures detailed in Rev. Proc. 2018-5.
Rev. Rul. 67-390 and Rev. Rul. 77-469 are obsoleted.
Rev. Proc. 2018-15