IRS revokes an organization's section 501(c)(3) exemption after reincorporation

Plain-English summary

The IRS revoked an organization's section 501(c)(3) exemption after it reincorporated in a different jurisdiction. The organization had first been incorporated in one state, lost its corporate status after failing to file a property return, and then reincorporated in another jurisdiction. The IRS treated the reincorporation as a significant change in the organization's legal structure and concluded that the new entity had to establish its exemption by filing a new application. The organization was required to reapply for exempt status.

Ruling snapshot

• Question: Could the organization retain its exemption after reincorporating under the laws of another jurisdiction?
• Outcome: Revocation
• Key authorities: IRC §§ 501, 6104, and 7428; Treas. Reg. § 1.501(a)-1(a)(2); Rev. Rul. 67-390

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

1100 Commerce Street 501.03-00

Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Release Number: 201203019
Release Date: 1/20/2012

Date: 8/26/2011

LEGEND Person to Contact:
ORG - Organization name Badge Number:
XX - Date Address - address Contact Telephone Number:
Contact Address:
Employer Identification Number:
ORG
ADDRESS
CERTIFIED MAIL
Dear

This is a final notice of adverse determination that your exempt status under section

501(c)(3) of the Internal Revenue Code is revoked. Recognition of your exemption under
Internal Revenue Code section 501(c)(3) is revoked effective January 1, 20XX for the following
reason(s):

You are not operated exclusively for an exempt purpose as required by Internal Revenue Code
section 501(c)(3). You are not and have not been engaged primarily in activities which
accomplish one or more exempt purposes. You are not a charitable organization within the
meaning of Treasury Regulation 1.501(c)(3)-1(d); rather, your activities further a substantial
nonexempt commercial purpose and serve private rather than public interests.

Because you did not protest the proposed modification of your non-private foundation status and
have indicated your agreement by signing the Form 6018 on July 13, 20XX, it is further determined
that you have not exhausted your available remedies for purposes of declaratory judgment under
section 7428 of the Code.

Contributions to your organization are no longer deductible effective January 1, 20XX.

Since your exempt status has been revoked, you are required to file Form 1120, U.S.
Corporation Income Tax Return, for all years beginning on or after January 1, 20XX.

Income tax returns for subsequent years are to be filed with the appropriate Service Center
identified in the instructions for those returns,

It is further determined that your failure to file a written appeal constitutes a failure to exhaust
your available administrative remedies. However, if you decide to contest this determination in
court, you must initiate a suit for declaratory judgment in the United States Tax Court, the
United States Claims Court, or the district court of the United States for the District of Columbia
before the (ninety-first) 91st day after the date that this determination was mailed to you.
Contact the clerk of the appropriate court for rules for initiating suits for declaratory judgment.
To secure a petition form, write to the following address: United States Tax Court, 400 Second
Street, NW, Washington, DC 20217.

Please understand that filing a petition for a declaratory judgment under IRC section 7428 will
not delay the processing of subsequent income tax returns and assessment of any taxes due.

You also have the right to contact the Office of the Taxpayer Advocate. However, you should
first contact the person whose name and telephone number are shown above since this person
can access you tax information and can help you get answers. You can call 1-877-777-4778,
and ask for the Taxpayer Advocate assistance or you can contact the Advocate from the site
where this issue was determined by writing to:

Taxpayer Advocate assistance cannot be used as substitute for established IRS procedures,
formal appeals processes, etc. The Taxpayer Advocate is not able to reverse legal or technically
correct tax determination, nor extend the time fixed by law that you have to file a petition in
Court. The Taxpayer Advocate can, however, see that a tax matter that may not have been
resolved through normal channels gets prompt and proper handling.

This letter should be kept within your permanent records.

If you have any questions, please contact the person whose name and telephone number are
shown above.

Sincerely,

Nanette M. Downing
Director, EO Examinations
Enclosures:
Publication 892

DEPARTMENT OF THE TREASURY
Internal Revenue Service
1100 Commerce Street
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
February 11, 2011
Taxpayer Identification Number:
ORG
ADDRESS Form:

Tax Year(s) Ended:
Person to Contact/ID Number:

Contact Numbers:
Telephone:
Fax:

Certified Mail - Return Receipt Requested

Dear

We have enclosed a copy of our report of examination explaining why we believe
revocation of your exempt status under section 501(c)(3) of the Internal Revenue Code
(Code) is necessary.

If you accept our findings, take no further action. We will issue a final revocation letter.

If you do not agree with our proposed revocation, you must submit to us a written
request for Appeals Office consideration within 30 days from the date of this letter to
protest our decision. Your protest should include a statement of the facts, the
applicable law, and arguments in support of your position.

An Appeals officer will review your case. The Appeals office is independent of the
Director, EO Examinations. The Appeals Office resolves most disputes informally and
promptly. The enclosed Publication 3498, The Examination Process, and Publication
892, Exempt Organizations Appeal Procedures for Unagreed Issues, explain how to
appeal an Internal Revenue Service (IRS) decision. Publication 3498 also includes
information on your rights as a taxpayer and the IRS collection process.

You may also request that we refer this matter for technical advice as explained in
Publication 892. If we issue a determination letter to you based on technical advice, no
further administrative appeal is available to you within the IRS regarding the issue that
was the subject of the technical advice.

Letter 3618 (04-2002)
Catalog Number 34809F

If we do not hear from you within 30 days from the date of this letter, we will process
your case based on the recommendations shown in the report of examination. If you do
not protest this proposed determination within 30 days from the date of this letter, the
IRS will consider it to be a failure to exhaust your available administrative remedies.
Section 7428(b)(2) of the Code provides, in part: "A declaratory judgment or decree
under this section shall not be issued in any proceeding unless the Tax Court, the
Claims Court, or the District Court of the United States for the District of Columbia
determines that the organization involved has exhausted its administrative remedies
within the Internal Revenue Service." We will then issue a final revocation letter. We
will also notify the appropriate state officials of the revocation in accordance with section
6104(c) of the Code.

You have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate
assistance is not a substitute for established IRS procedures, such as the formal
appeals process. The Taxpayer Advocate cannot reverse a legally correct tax
determination, or extend the time fixed by law that you have to file a petition in a United
States court. The Taxpayer Advocate can, however, see that a tax matter that may not
have been resolved through normal channels gets prompt and proper handling. You
may call toll-free 1-877-777-4778 and ask for Taxpayer Advocate Assistance. If you
prefer, you may contact your local Taxpayer Advocate at:

If you have any questions, please call the contact person at the telephone number
shown in the heading of this letter. If you write, please provide a telephone number and
the most convenient time to call if we need to contact you.

Thank you for your cooperation.

Sincerely,

Nanette M. Downing
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
886A

Letter 3618 (04-2002)
Catalog Number 34809F

Form 886 A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
20XX12
ORG
LEGEND
ORG - Organization name XX - Date City - city State - state

Country - country

ISSUES:

1. Whether ORG’ exemption should to be revoked due to its filing for corporate status in another
   jurisdiction (City, State) subsequent to its original corporate filing in the State of State.

FACTS:

1. ORG was incorporated in State on November 29, 20XX. On 10/6/20XX, State forfeited ORG’s
   corporate status for failure to file the 20XX property return. ORG subsequently reincorporated in
   the District of Country on May 3, 20XX.

LAW:

Section 1.501 (a)-1(a)(2) of the Income Tax Regulations requires that, in order to establish exemption,
an organization must file an appropriate application form with the District Director for the internal revenue
district in which is located the principal place of business or principal office of the organization. Rulings or
determination letters holding organizations exempt are effective so long as there are no material changes
in the organization’s character, purposes, or methods of operation.

REV-RUL, SECTION 501.--EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN TRUSTS, ETC.,
Revenue Ruling 67-390, 1967-2 CB 179, (Jan. 01, 1967)

SECTION 501.--EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN TRUSTS, ETC.
Requirement for new applications for exemption from Federal income tax in case of a change in the
structure of organizations exempt from Federal income tax under section 501 (a) of the Internal Revenue
Code of 1954.

The Internal Revenue Service has been asked whether new applications for exemption are required in
four cases where changes were made in the structure of organizations which previously had been held
exempt from Federal income tax under section 501(a) of the Internal Revenue Code of 1954 or a
counterpart provision of prior law.

Case 1. An exempt trust was reorganized and adopted a corporate form to carry out the same
purposes for which the trust had been established. Its operations were not changed.

Case 2. An exempt unincorporated association was incorporated and continued the operations
which had qualified it for exemption.

Case 3. An exempt organization incorporated under state law was reincorporated by an Act of
Congress to carry out the same purposes contained in the state charter.

Case 4. An exempt organization incorporated under the laws of one state was reincorporated under
the laws of another state with no change in its purposes.

in each of the four cases described above a new legal entity has been created. Each new entity must
establish its exemption in accordance with the regulations set forth above. Accordingly, each of the above

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: -1-

Form 886A Department of the ‘Treasury- Internal Revenue Service Schedule No. or
Explanation of Items Exhibit

Name of Taxpayer Year/Period Ended
20XX12

ORG

organizations must file an application for exemption to establish that the new entity qualifies for exemption
under the Code and applicable regulations.

TAXPAYER POSITION:

The taxpayer stated in interviews that it did not realize the ramifications of the subsequent filing for
corporate status in a new jurisdiction.

GOVERNMENT POSITION:

The government's position is that there has been a significant change in the organization’s character and
or structure. The taxpayer's actions are identical to that of case four of Rev. Rul. 67-390. As such it is
subject to the rules as found in Per Rev. Rul. 67-390.

CONCLUSION:

ORG Community Service's exemption will be revoked. ORG will have to reapply for its exempt status.

Form 886- Acrev.4-68) Department of the Treasury - Internal Revenue Service
Page: -2-