New York Advisory Opinion TSB-A-10(7)C: Must a New York not-for-profit corporation that has no IRS 501 determination still file and pay Article 9-A franchise tax?

Plain-English summary

A New York not-for-profit corporation associated with the Knights of Columbus (organized as a Type A corporation, no stock, no profit motive) had filed and paid New York franchise tax for 1999-2003, then stopped. The Department issued tax warrants for 2004-2008. The corporation -- which has no IRS section 501 determination letter -- asked whether it actually owes Article 9-A franchise tax, whether filing creates a continuing obligation, and whether the liens stand.

The Department concluded the corporation is not subject to Article 9-A tax and any lien should be released. The exemption in 20 NYCRR 1-3.4(b)(6) covers corporations organized other than for profit with no stock or shares, operated on a nonprofit basis with no net earnings inuring to any officer, director, or member. A subparagraph says a corporation that is exempt under IRC section 501(a) is presumed exempt under Article 9-A, while one denied federal exemption is presumed taxable. Here the corporation was never denied a federal exemption -- it simply never sought one -- so the lack of a federal letter creates only a rebuttable presumption of taxability, which the facts rebut. The corporation should file Form CT-247 (Application for Exemption from Corporation Franchise Taxes by a Not-for-Profit Organization) certifying it meets the regulation. Because issue one resolved the rest, any lien under Tax Law section 1092 will be released once the exemption is demonstrated.

What this means for you

New York not-for-profits without an IRS determination

You do not need an IRS section 501 letter to be exempt from New York's corporate franchise tax. If you have no stock and no private benefit, you can qualify under the state regulation. The missing federal letter is only a presumption you can overcome.

Nonprofit boards and treasurers

If you receive franchise-tax warrants but actually qualify for exemption, file Form CT-247 to establish the exemption; the liens should then be released. Don't assume past filings locked you into a permanent obligation.

Accountants and tax professionals

The key distinction is never sought federal exemption (rebuttable presumption of taxability) versus denied federal exemption (stronger presumption of taxability). Tax exemptions are narrowly construed, so document the no-stock / no-inurement facts carefully.

Common questions

Q: Does a New York nonprofit need IRS 501(c) status to avoid franchise tax?
A: No. It can qualify under 20 NYCRR 1-3.4(b)(6) if it has no stock and no earnings inure to members; the missing IRS letter is only a rebuttable presumption of taxability.

Q: How does the nonprofit claim the exemption?
A: By filing Form CT-247 certifying it meets the regulation's requirements; any franchise-tax lien should then be released.

Citations and references

• 20 NYCRR 1-3.4(b)(6) (Article 9-A exemption for not-for-profit corporations with no stock and no inurement)
• IRC § 501 (federal tax-exempt status; subsection (a) presumption)
• Tax Law § 1092 (tax warrants and liens); Tax Law § 1092(d) (warrant for unpaid franchise tax)
• Form CT-247 (Application for Exemption from Corporation Franchise Taxes by a Not-for-Profit Organization)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2010.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a10_7c.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-10(7)C
Corporation Tax
June 23, 2010

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C100317A

A petition was filed by name redacted (the Petitioner), a not-for-profit corporation organized as a
Type A Corporation under the New York Not-for-Profit Law. The facts and analysis set forth below are
based on representations in the petition and additional information provided by Petitioner’s representative.
The petition presents the following four issues:
1.
Whether a not-for profit corporation, duly incorporated under the New York State Not-forProfit Corporation Law, but which has not obtained a recognition of federal tax exempt status pursuant to §
501 of the Internal Revenue Code, has an obligation to file corporate franchise tax returns and/or pay
corporate franchise tax under Article 9-A of the Tax Law.
2.
Whether the filing of corporate franchise tax returns under Article 9-A by a not-for-profit
corporation creates a continuing obligation to file such returns.
3.
Whether a lien is created pursuant to § 1092 of the Tax Law or pursuant to any other section
of the Tax Law against a not-for-profit corporation for the failure to continue to file corporate franchise tax
returns.
4.
Whether a lien that is imposed against a not-for-profit corporation for failure to file
corporate franchise tax is automatically extinguished if it is determined that the corporation does not have
any obligation to file such returns and does not have any tax liability.
The analysis of the first issue will determine the conclusions to the three other issues raised. We
conclude Petitioner is not subject to franchise tax under Article 9-A of the Tax Law, and that any lien
imposed for failure to pay such tax should be released.
Facts
Petitioner is a not-for-profit corporation that is associated with the Knights of Columbus. The
Knights of Columbus is a national religious fraternal service organization. Unlike many affiliates of the
Knights of Columbus, Petitioner was established as a distinct entity in order to maintain independence from
the parent organization. Petitioner states that there is no distinction between the activities of Petitioner and
other affiliates of the parent organization.
Petitioner was originally organized in 1963 under the former Membership Corporation Law pursuant
to a certificate of incorporation that was filed with the Secretary of Council 3424, Knights of Columbus,
name of city redacted, New York, an unincorporated association not organized for pecuniary profit. The
certificate provides that the purpose for which the corporation is formed is:

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TSB-A-10(7)C
Corporation Tax
June 23, 2010

To promote intellectual culture, high moral standards and virtues conducive to the welfare and best
interests of the community, and particularly the members of the said association, by providing a place for
social intercourse and other facilities as may tend to further their physical, mental and cultural development.
After the New York Not-for-Profit Corporation Law (NPCL), was enacted, Petitioner filed a
Certificate of Type with the Department of State on June 25 1973, which designated Petitioner as a Type A
Corporation under the NPCL. Under § 201 of the NPCL, a Type A Corporation is a not-for-profit
corporation that may be formed for any lawful non-business purpose or purposes including, but not limited
to, any one or more of the following non-pecuniary purposes: civic, patriotic, political, social, fraternal,
athletic, agricultural, horticultural, animal husbandry, and for a professional, commercial, industrial, trade or
service association. Petitioner states that it does not have stock or shares or certificates for stock. Petitioner
further states that it is operated on a not-for-profit basis and no part of its net earnings inures to the benefit of
any officer, director or member of the corporation.
Petitioner contends that it does not fall under any of the Federal tax exempt provisions of § 501 of
the Internal Revenue Code. Petitioner has never filed Federal Form 990 (Return of Organization Exempt
From Income Tax) or other Federal tax returns because, according to Petitioner, it is not required to do so.
However, the Internal Revenue Service has never notified Petitioner that it is tax exempt.
According to Petitioner’s representative, Petitioner filed New York State franchise tax returns and
paid taxes for the taxable years 1999 through 2003, but discontinued filing State returns after that date. As a
result of the failure to file New York State returns for taxable years 2004-2008, the Department issued
warrants against Petitioner for unpaid taxes for those years.
Analysis
A general principle of taxation is that tax exempt status is narrowly construed. To substantiate tax
exempt status, one must typically point to a specific provision of law conferring exempt status.
New York Tax Law regulation, 20 NYCRR §1-3.4 (b)(6), provides an exemption for:
(6) corporations organized other than for profit which do not have stock or shares or
certificates for stock or for shares and which are operated on a nonprofit basis no part of the net
earnings of which inures to the benefit of any officer, director, or member, including Not-for-Profit
Corporations and Religious Corporations.
This paragraph is further qualified by the following subparagraph:
(i) A corporation organized other than for profit, as described in this paragraph, which is exempt
from Federal income taxation pursuant to subsection (a) of section 501 of the Internal Revenue Code, will be
presumed to be exempt from tax under article 9-A. If a corporation organized other than for profit is denied
exemption from taxation under the Internal Revenue Code, such corporation will be presumed subject to tax
under article 9-A.
While it does not appear that Petitioner has been denied exemption from taxation under the Internal
Revenue Code, it has not received any affirmative statement from the Internal Revenue Service confirming
that it is exempt from federal income tax. Regulation 20 NYCRR §1-3.4 (b)(6), provides that failure to
have a Federal exemption creates only a presumption of taxability.
However, this presumption may be
rebutted.

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TSB-A-10(7)C
Corporation Tax
June 23, 2010

The facts supplied by Petitioner suggest that Petitioner meets the standards set forth in the exemption
regulation. Therefore, Petitioner should qualify as exempt from the corporate franchise tax imposed under
Article 9-A of the Tax Law. Petitioner should file a completed CT-247 form (Application for Exemption
from Corporation Franchise Taxes by a Not-for-Profit Organization) with the Department certifying that it
meets the exemption requirements under Regulation 20 NYCRR §1-3.4 (b)(6) as stated in the Petition.
A warrant may be issued under §1092(d) of the Tax Law for the amount of any franchise tax due but
unpaid. The warrant acts as a lien on the real and personal property of the taxpayer. In addition, Tax Law §
1092(j) creates a lien for the tax imposed under Article 9-A as of the due date of the return. In the event
Petitioner demonstrates that it is exempt under Article 9-A, it will be entitled to a release of any lien imposed
pursuant to Tax Law §1092.

DATED: June 23, 2010

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel
An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued or
for the specific time period at issue in the Opinion.