Many tax-exempt organizations can now change their state of organization and retain their current tax exemption.
Revenue Procedure 2018-15 provides that, in most circumstances, tax-exempt organizations no longer need to file new exemption applications if they change their organizational forms or states of incorporation. This Revenue Procedure makes obsolete Revenue Rulings 67-390 and 77-469, which previously required new tax-exemption applications in similar circumstances. The Internal Revenue Service (IRS) published Revenue Procedure 2018-15 in Internal Revenue Bulletin 2018-9 on February 26, 2018.
Section 501(c) organizations may engage in certain corporate restructurings without reapplying for recognition of their tax exemptions under the following conditions.
The original restructured organization must be
The surviving organization must
The restructuring transaction between or among the above entities must be one of
These conditions are discussed in more detail below.
The Revenue Procedure allows only certain domestic business entities that are classified as corporations under Treasury Regulations § 301.7701-2(b)(1) or (2) to restructure without requiring the surviving organizations to file new exemption applications. This includes state, federal, or tribal corporations, and unincorporated associations that are treated as corporations. Other entities, such as non-US entities, trusts, or entities wholly owned by states or political subdivisions are not within the scope of this Revenue Procedure.
This Revenue Procedure also requires that the restructured corporation be in good standing with the state in which it was incorporated (or formed, in the case of unincorporated associations).
The surviving organization must be a domestic entity classified as a corporation under Treasury Regulations § 301.7701-2(b)(1) or (2), which includes a state, federal, or tribal corporation, and an unincorporated association that is treated as a corporation.
The surviving organization must “carry out the same purposes” as the restructured organization. Presumably, this would allow the surviving organization to subsequently expand its purposes to the same extent that the restructured organization could have done had it not restructured.
The Revenue Procedure does not apply to any restructuring where the surviving organization obtains a new EIN.
If the restructuring organization was a Section 501(c)(3) organization, then the articles of organization of the surviving organization must continue to meet the Section 501(c)(3) organizational test. The organizational test requires that the organization’s articles limit the purposes of the organization to exempt purposes and that its assets be dedicated to exempt purposes.
If the restructuring organization or the surviving organization is a disregarded entity, LLC, partnership, or non-US business entity, then the Revenue Procedure will not apply.
Surviving organizations that do not meet the above requirements and want to be recognized as exempt are referred to Revenue Procedure 2018-5 for procedures to apply.
A surviving organization should report the corporate restructuring on its Form 990 and any change of address on Forms 8822-B and 990. A Section 501(c)(4) organization will not be required to file a new notice under Section 506 if it restructures and the surviving organization meets these conditions.
The Revenue Procedure provides eight examples applying the new rules. In each of the examples, the restructuring organization is in good standing and the surviving organization carries out the same purposes as the restructuring organization.
The first three examples address domestic entities in restructurings that were described in Revenue Ruling 67-390, but the results in two of those cases are reversed.
The remaining five examples address cases that were not included in the prior guidance. One of these addresses the case where an exempt corporation changes its state of incorporation by domesticating rather than by reincorporating in a different state. As with the reincorporating organization, an organization that domesticates to a new state is not required to file a new exemption application.
The next two examples address cases involving an LLC or a foreign corporation. The Revenue Procedure does not apply to either of these types of entities. Thus, in the case of an exempt domestic corporation that converts into an LLC, the LLC is required to file a new exemption application if it wants to be recognized as tax-exempt. Similarly, in the case of an exempt foreign corporation that reincorporates as a domestic corporation, the surviving domestic corporation is also required to file a new exemption application in order to be recognized as tax-exempt.
The final two examples involve exempt domestic corporations that merge into existing entities. In the first of these examples, two exempt domestic corporations merge. The surviving organization after this merger is not required to file a new exemption application. In the second example, an exempt domestic corporation merges into a disregarded LLC of another exempt domestic corporation. The example provides that the LLC will be required to file an exemption application if it seeks to be recognized as tax-exempt. Although not addressed by the Revenue Procedure, this example presumably is intended to illustrate that the Revenue Procedure will not apply if the LLC seeks to be exempt as a separate regarded entity rather than remain as a disregarded entity of its exempt parent.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Caroline W. Waldner
 Rev. Proc. 2018-15, § 5.01.
 Rev. Proc. 2018-15, §§ 2, 3, 5.01.
 Rev. Proc. 2018-15, § 5.02.
 Rev. Proc. 2018-15, § 5.01(3).
 Rev. Proc. 2018-15, § 5.04(2).
 Rev. Proc. 2018-15, § 5.03; Treas. Reg. § 1.501(c)(3)-1(b).
 Rev. Proc. 2018-15, § 5.04(1).
 Rev. Proc. 2018-15, § 5.05.
 Rev. Proc. 2018-15, § 5.06.
 Rev. Proc. 2018-15, § 8.03.