SECTION 2. BACKGROUND AND — Internal Revenue Bulletin 2018-9

ANALYSIS

Section 501(a) of the Internal Revenue Code (Code) provides that an organization described in section 501(c) shall be exempt from taxation under Subtitle A of the Code.

Section 1.501(a)–1(a)(2) of the Treasury Regulations provides that it is necessary for an organization to file an application in order to establish its exemption.

Section 1.501(a)–1(a)(3) of the Treasury Regulations provides that an organization claiming exemption under section 501(a) and described in section 501(c) shall file the form of application prescribed by the Commissioner.

Section 505 of the Code generally provides that an organization shall not be treated as described in paragraph (9), (17), or (20) of section 501(c) unless it has given notice to the Secretary that it is applying for recognition of exemption.

Section 506 of the Code generally provides that an organization described in section 501(c)(4) shall, not less than 60 days after the organization is established,

notify the Secretary that it is operating as such.

Section 508 of the Code generally provides that an organization organized after October 9, 1969 shall not be treated as described in section 501(c)(3) unless it has given notice to the Secretary that it is applying for recognition of exemption.

Section 1.508–1(a)(2) of the Treasury Regulations provides that an organization seeking exemption under section 501(c)(3) files the notice described in section 508(a) by submitting a properly completed and executed Form 1023 (or, if applicable, Form 1023–EZ) exemption application. Section 6109(a) of the Code generally provides that any person required to make a return, statement or other document under subtitle A shall include its identifying number.

Section 6109(c) of the Code provides that the Secretary or his delegate is authorized to require such information as may be necessary to assign an identifying number to any person.

Section 301.6109–1(a)(1)(ii)(C) of the Treasury Regulations provides that any person other than an individual that is required to furnish a taxpayer identifying number must use a federal Employer Identification Number (EIN). Section 301.6109–1(h)(1) of the Treasury Regulations generally provides that any entity with an EIN will retain that EIN if its federal tax classification changes under § 301.7701–3 of the Treasury Regulations. For special EIN rules, see § 301.6109–1(h)(2) of the Treasury Regulations (entities disregarded as separate from their owners) and (i) (qualified subchapter S subsidiaries).

Section 301.7701–2(a) of the Treasury Regulations provides that a business entity is any entity recognized for federal tax purposes (including an entity with a single owner that may be disregarded as an entity separate from its owner under § 301.7701–3 of the Treasury Regulations) that is not properly classified as a trust under § 301.7701–4 of the Treasury Regulations or otherwise subject to special treatment under the Code. It further provides that a business entity with two or more members is classified for federal tax purposes as either a corporation or a partnership, and a business entity with only one owner is classified as a corporation or is disregarded.

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same Code section under the currently extant facts. Section 4 of Rev. Proc. 2018–5 provides that organizations seeking recognition of exemption under section 501(c)(3) must submit a completed Form 1023 or Form 1023–EZ (if applicable), organizations seeking recognition of exemption under section 501(c)(4) must submit a completed Form 1024–A, organizations seeking recognition of exemption under sections 501(c)(2), (5), (6), (7), (8), (9), (10), (12), (13), (15), (17), (19), and (25) must submit a completed Form 1024, and organizations seeking recognition of exemption under sections 501(c)(11), (14), (16), (18), (21), (22), (23), (26), (27), (28), or (29), or under section 501(d) must submit a letter application. Section 11.02 of Rev. Proc. 2018–5 provides that an organization may not rely on its determination letter if there is a material change of facts, inconsistent with exemption, in the character, purpose, or method of operation of the organization.

Rev. Rul. 67–390, 1967–2 C.B. 179, holds that a new exemption application is required in four cases where an organization previously recognized as exempt from federal income tax under section 501(a) makes certain changes in its structure. The four structural changes are: (1) incorporation of a trust; (2) incorporation of an association; (3) reincorporation by an Act of Congress; and (4) reincorporation under the laws of another state. The ruling states that each of these cases creates a new legal entity and, accordingly, each new organization must file an application for exemption to establish that the new entity qualifies for exemption under the Code and applicable regulations.

Rev. Rul. 77–469, 1977–2 C.B. 196, holds that an unincorporated association which incorporated after the enactment of section 508 is a new legal entity and therefore is required to file an application to be recognized as exempt under section 501(c)(3).

Accordingly, the IRS in the past has specified in forms and publications that a new exemption application is required if an exempt organization changes its legal structure, such as from a trust to a corporation, or it dissolves in one state and incorporates in another. See, e.g ., Publication 557, Tax Exempt Status for Your Organization (Rev. Jan. 2018) and 2017

Instructions for Form 990 Return of Organization Exempt from Income Tax (Jan. 18, 2018). These IRS forms and publications also specify that organizations are required to report new significant program services or significant changes in how they conduct program services, and significant changes to their organizational documents, on their Forms 990 rather than in letters to EO Determinations. Id.

However, other rules generally provide that in many of these circumstances a new EIN is not required for federal tax purposes. For example, when one corporation merges into another corporation under state law and the latter corporation survives, a new EIN is not required for the surviving corporation. Similarly, a new EIN is not required if a corporation incorporated under the laws of one state reincorporates as a corporation incorporated under the laws of another state. See Rev. Rul. 73–526, 1973–2 C.B. 404.

Publication 1635, Employer Identification Number, Understanding your EIN (February 2014), provides further instruction regarding when a new EIN is necessary. Specifically, Publication 1635 specifies that a new EIN is not required in the following cases:

After a corporate merger, the surviving corporation uses its existing EIN.
After a corporate reorganization, a corporation only changes its identity, form, or place of organization. Publication 1635 also specifies that a new EIN is required in the following cases:
A corporation creates a new corporation after a statutory merger.
A trust changes to an estate or other non-trust. In 2015, the Department of the Treasury (Treasury Department) and the IRS announced they are studying how to assign (or reassign) EINs to taxpayers following a reorganization under section 368(a)(1)(F) of the Code, including in cases in which the transferor corporation remains in existence as a disregarded entity, and requested public comments. T.D. 9739, 80 F.R. 56904, 56911 (Sept. 21, 2015). The IRS rules for new exemption applications generally are more burdensome than the rules for new EINs described

above. Specifically, Rev. Ruls. 67–390 and 77–469 require new exemption applications in the following cases in which IRS rules generally do not require a new EIN:

Incorporation of an exempt association.
Reincorporation under an Act of Congress.
Reincorporation of an exempt corporation in a different state. Moreover, the Treasury Department and the IRS have not published guidance on whether a new exemption application is required in the following circumstances in which the IRS may not require a new EIN:
Continuation of a surviving corporation after a statutory merger of exempt organizations.
Filing articles of domestication in a different state by an exempt organization. Requiring a new exemption application after a corporate restructuring often is unnecessary and duplicative, because the IRS requires exempt organizations to report significant organizational changes on their annual Forms 990. Moreover, any possible exemption issues with a corporate restructuring are less burdensome for the IRS to administer when the surviving organization can continue to use the same EIN on its Form 990 as the restructuring organization. Accordingly, this revenue procedure generally eliminates the requirement for domestic business entities classified as corporations for federal tax purposes to file a new exemption application after a corporate restructuring, if certain conditions are met, to better align the requirements for new exemption applications with the requirements for obtaining new EINs in common restructuring situations.

In light of the pending Treasury Department and IRS study on assigning and reassigning EINs in certain reorganizations under section 368(a)(1)(F), and the lack of published guidance explaining how exemption requirements apply to limited liability companies organized under various state laws, this revenue procedure does not apply to corporate restructuring transactions with limited liability companies or foreign business entities.

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