IRS Eases Up on Corporate Restructurings and Requiring New Exemption Applications

The IRS has eased its requirements around new 1023 and 1024 applications—which is good news for organizations that change certain entity forms or reincorporate in another state. We blogged about this back in 2014 when the IRS first issued some private letter rulings signaling this change, and the IRS last year formalized the shift with Revenue Procedure 2018-15. We’ve received a number of inquiries about the requirements as they stand now, so below is a refresher.

Background. Historically, under Revenue Ruling 67-390, 1967-2 C.B. 179, the IRS made its position clear that a new entity was deemed to arise, and a new form 1023 was required in the following examples:

  • Reorganization from exempt trust to corporate form;
  • Reorganization from unincorporated association to corporate form;
  • Reincorporation of nonprofit corporate under Act of Congress;
  • Reincorporation of an organization under the laws of a second state.

Interestingly, other federal tax rulings regarding EIN numbers typically held that a new EIN would not be required in most of the above circumstances—the practical result being that an organization with the same EIN would be applying again for recognition of exempt  status.

Current Status. In Revenue Procedure 2018-15, the IRS recognizes that requiring a new Form 1023 or 1024 after a corporate restructuring is often “unnecessary and duplicative, because the IRS requires exempt organizations to report significant organization changes on their annual Forms 990.” In addition, possible exemption issues related to a corporate restructuring is less onerous for the IRS when the same EIN is involved.

As such, the IRS no longer requires a new Form 1023 or 1024 in the case of a corporate restructuring of a domestic corporation that is recognized exempt under Section 501(c) if the surviving entity is (1) a domestic business entity; (2) classified as a corporation under the check-the-box regulations; and (3) carrying out the same purposes as the exempt organization that engaged in the corporate restructuring. In other words, no new Form 1023 or 1024 will be required in the following circumstances:

  • Incorporation of a nonprofit association
  • Reincorporation in a different state
  • Merger into an existing domestic corporation

However, a new 1023 or 1024 would be required for the following actions:

  • Restructuring as an LLC, partnership, foreign business entity or disregarded entity
  • Reincorporation of a non-U.S. entity
  • Incorporation of a charitable trust

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