Wednesday, February 21, 2018
Exemption Application Changes: IRS Removes Need to Reapply for Exemption for Some Changes in Legal Form & Revises Application Forms, Fees
The IRS has recently made a number of significant changes to the process for applying for recognition of exemption under Internal Revenue Code section 501. Probably the most important is found in Revenue Procedure 2018-15, which provides that the IRS will not require a new exemption application from a domestic section 501(c) organization that merely changes its legal form or legal place of organization in many situations. This welcome change obsoletes Revenue Rulings 67-390 and 77-469, which generally required a new application under these circumstances. As detailed in the new Revenue Procedure, changes that generally will no longer require a new exemption application assuming no change in purposes include:
- an unincorporated nonprofit organization becoming incorporated,
- a corporation formed under the laws of one state reincorporating under the laws of a different state,
- a corporation formed under the laws of one state filing articles of domestication under the laws of a different state, and
- mergers of two corporations.
Changes that generally will still require a new exemption application include:
- a charitable trust becoming incorporated,
- any change where the surviving organization is a disregarded entity, limited liability company, partnership, or foreign business entity,
- any change where the surviving organization obtains a new employer identification number, and
- any change involving a foreign entity becoming a domestic entity.
While not addressed specifically in the Revenue Procedure, it appears that if a corporation becomes a charitable trust a new exemption application would be required because a charitable trust is not considered a business entity for federal tax purposes.
The IRS has also:
- revised Form 1023 (application for recognition of exemption under section 501(c)(3) of the Internal Revenue Code), although the changes appear relatively minor
- revised Form 1023-EZ (streamlined application for recognition of exemption under section 501(c)(3) of the Internal Revenue Code) as explained here by the IRS, including adding a request for a brief description of the organization's mission or most significant activities
- finalized new Form 1024-A (application for recognition of exemption under section 501(c)(4) of the internal revenue code)
- in Revenue Procedure 2018-5, changed the user fee for all exemption applications other than Form 1023-EZ to $600, updated the procedures for requesting relief to limit retroactive revocation of modification of a determination letter, and added organizations applying for retroactive reinstatement after being automatically revoked for failure to file required annual information returns to the list of entities ineligible to submit Form 1023-EZ