In many states, corporations are permitted to change the law that governs them through a process called "domestication." Through this process, a corporation is "transferred" to another state's jurisdiction without any break or interruption in that corporation's existence. The corporation would continue to own the same assets and bear the same liabilities and is usually not considered a brand-new entity. The corporation, for all purposes, remains the same, with the exception of its governing law. Depending upon the law of the states in question, most corporations can effect a domestication by filing a simple form with the applicable Secretary of State's office.
The IRS recently issued a letter ruling holding that a tax-exempt corporation may, through domestication, change its governing law to a different state without having to reapply for tax-exempt status. In PLR 201446025 (August 20, 2014), the IRS held that a corporation's domestication to a new state didn't require the filing of a new exemption application. In reaching its decision, the IRS noted the corporation was keeping its "organizational form," was maintaining its "original incorporation date" and continued to be the same corporation after it consummated the domestication. The domestication did "not amount to the creation of a new organization" and was not considered a "substantial change" in the corporation's "character, purposes or methods." Accordingly, the corporation could continue to rely on its existing determination of tax-exempt status issued by the IRS. The IRS noted the corporation should still report the change in governing law on its Form 990.
With this recent IRS letter, tax-exempt corporations changing the jurisdictions of their governing law may be able to proceed without having to reapply for tax-exempt status. However, before undertaking such action, the corporation will need to analyze the applicable law of both its domicile state and the state where it desires to transfer, to ensure there is no break or change in the corporation's existence.
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