IRS Issues Favorable PLR on Change of Charity’s Domicile

In Private Letter Ruling 201446025 (Aug. 20, 2014), the Internal Revenue Service (“IRS”) ruled that a charitable nonprofit would maintain its tax-exempt status after changing it state of domicile by filing Articles of Domestication in the new state.  The organization, originally incorporated under the laws of State 1, received a favorable determination of its exemption under Internal Revenue Code section 501(c)(3).  It planned thereafter to file “Articles of Domestication” with State 2 and a Certificate of Conversion in State 1 in order to change its state of domicile.  The organization sought assurance that it would continue to be recognized as tax-exempt without filing a new Form 1023 with the IRS.

According to the IRS, the conversion would not constitute “the creation of a new organization for purposes of I.R.C. § 508(a) and Treas. Reg. § 1.508-1 (a).”  The IRS further concluded that the change of domicile “will not be considered a substantial change in [the entity’s] character, purposes, or methods of operation under Treas. Reg. § 1.501 (a)-(1)(a)(2) for purposes of reliance on [the organization’s] prior determination of exempt status.”  Consequently, after the change in its state of domicile, the organization may “rely on the determination of tax exempt status” previously issued to it. However, amendments to the organization’s governing documents related to the change of domicile “should be reported on Form 990 as significant changes,” the IRS concluded.

The IRS also stated that its analysis “would be different if a new corporation were created in State 2” and the two entities were merged, or the old corporation transferred assets to the new corporation.

Tax Notes Today (see 2014 TNT 224-4) reports that practicing attorneys are viewing the ruling favorably.

JRB