For years I told small homeschool groups:
“If you never incorporated as a nonprofit corporation in your state, then by default, your organization is an unincorporated association.”
And I also told them that,
“Unincorporated associations CAN apply for 501 tax exempt status,“
BUT
“If your association someday decides to incorporate, you have to reapply for 501c3 tax exempt status.
So it might be a good idea to just become a nonprofit corporation from the start.“
That was good advice because nonprofit corporate status has many advantages over unincorporated associations:
- Limited liability for leaders and members
- Longevity beyond the current leadership
- A legal entity that can buy property, lease space, etc.
But the IRS realized that sometimes tax exempt associations want the benefits of being a nonprofit corporation and the IRS was telling them they needed to reapply for 501c3 status, although nothing else changed!
This reapplication process (filing the IRS dreaded Form 1023, paying a hefty fee, and waiting 6 months for the IRS to reply) was termed “burdensome” by the IRS. Finally!
So the IRS wised up and created a document called Revenue Procedure 2018-15 which says (basically):
A domestic, exempt nonprofit association (in good standing) that restructures into a nonprofit corporation does not have to reapply for 501 tax exempt status
But there are a few conditions that need to be met:
- Domestic (meaning formed in the United States not a foreign country)
- Exempt meaning the association was already tax exempt by the IRS and has maintaining it tax exempt status by filing the annual Form 990/990-EZ or 990-N.
- Good standing in their state
- Have the IRS required language in their organizing documents (Articles of Association, Constitution, or bylaws)
- Not be an LLC or a partnership
Here’s an example that might apply to your homeschool group:
A homeschool support group formed in Ohio (#1 domestic) applied for and was granted 501c3 tax exempt status (#2 exempt) as an educational organization. They filed all required reports with Ohio’s Secretary of State (#3 Good standing). Their Constitution had the IRS required language about their 501c3 purpose, prohibitions, and dissolution (#4).
Then the support group grew larger started adding sports programs and a co-op. The leaders learned about the benefits of limited liability if they were restructured as a nonprofit corporation. They voted to convert to a nonprofit corporation and filed Articles of Incorporation in Ohio.
Under the old rules this homeschool group would have to re-apply for 501c3 status with the IRS by filing Form 1023 (what I call the beast), pay the IRS $600 fee and probably pay a professional to prepare their application.
Under the new IRS Rev Proc 2018-15, there is no need to reapply. That saves $600 or more! Plus a lot of time!
All the IRS asks is that your file your annual information return, Form 990 or 990-EZ, and explain the restructuring and attach the new Articles of Incorporation. That’s it!
Additionally, you can keep the original EIN. The IRS website says:
“You will not be required to obtain a new EIN if any of the following statements are true….
Conversion at the state level (to be a corporation) with business structure remaining unchanged.”
Source Do you need a new EIN.
So, no you don’t need a new EIN! That’s saves a lot of hassle as well!
If you have questions about nonprofit incorporation, 501c3 tax exempt status or running your homeschool group, See my webinars 501c3 Application for Homeschool Nonprofits or my book The IRS and Your Homeschool Organization.
Carol Topp, CPA
HomeschoolCPA.com
