Each month, I field dozens of calls from individuals and groups looking to start nonprofit, tax-exempt organizations. Recently, a potential client called with a unique question:
Can we transfer the tax-exempt status of Entity A to unrelated Entity B?
My clients thought this may be less complicated (and less expensive) way of obtaining tax-exempt status, rather than completing a 1023 Application for Entity B.
As I did some research into the issue, I quickly learned these assumptions were wrong in both respects. The IRS treats tax-exempt status as entity specific, and a change in the entity would be a significant enough event to require completing a new 1023.
A recent IRS Private Letter Ruling confirms my position in its discussion of a similar set of facts. Recently, a tax-exempt business league that was incorporated in State C, re-incorporated in State D. The original organization was dissolved and the assets of the old organization transferred to the new entity. The new organization assumed the tax ID of the former organization and carried on similar activities. The organization did not file a new application for recognition of tax exempt status and assumed the tax-exempt status of the former organization.
The IRS, relying on Rev. Ruling 67-390 (Requirements for new applications for exemption from Federal income tax in case of a change in the corporate structure) held that a new entity was formed and that the “New Entity must establish its exemption to establish that the new entity qualifies for exemption under the Code…”
-Jeff Fromknecht, Managing Attorney
Nonprofit Legal Services Division
Side Project Inc.