Want to Move Your State of Incorporation?

Recent IRS Guidance Made it Easier

Has your organization moved from the state it was incorporated?  If so, you may want to consider re-structuring your legal entity under the new guidance issued by the IRS.  In Rev. Proc. 2018-15, the IRS announced that a new exemption application is not required if a domestic tax-exempt organization changes its legal structure or re-incorporates in another state.  Under prior IRS guidance, an organization was required to file a new exemption application in order to keep its exemption if it made any of these changes. 

Over time, an organization’s center of operations may change from one part of the country to another.  The organization may be incorporated in a state where it has no offices, employees, or operations of any kind.  This results in at least two state filings (the incorporated state, the home office, and possibly more). In this situation, it may make sense for the organization to re-incorporate in another state.  This would avoid the need to file annual reports and retain a registered agent in the original state.  Under prior law, making this small change by re-incorporating in a new state would have required a full exemption application.  Now, this organization can incorporate in the state where it is most active, dissolve its old corporation, and retain its original tax exemption without filing a new application.

We are aware of a case where all of an organization’s employees, property, and operations were located in State A, but it was incorporated in State B.  As an out-of-state corporation, it was ineligible for a property tax exemption in State A.  Simply changing the state of incorporation allowed that organization to receive a property tax exemption that was worth thousands of dollars per year.

This guidance also makes it easier to change one’s legal structure.  An unincorporated association can now incorporate and take advantage of liability protections and a well-developed body of corporate law without going through the hassle of seeking a new IRS determination.

If you would like guidance or assistance in making any of these changes please contact us.

This article is provided for general information and should not be relied upon as legal advice for a specific situation.  If you are in need of specific advice or legal representation, please do not hesitate to contact us.

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