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Moving a Nonprofit from One State to Another

Last modified: April 19, 2021
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Overview

The IRS issued guidance in 2018 that allows for a nonprofit that is incorporated in a particular state, and has been granted tax-exempt status by the IRS, to relocate corporate headquarters to another state without having to re-apply for tax-exemption.

The Problem

While the IRS allows it, most states do not.  The reason is that the corporation IS the entity.  501(c) status is merely the tax structure granted to that corporation by the IRS.  And since each corporation is incorporated in only one state, there is really no such thing as moving it.  In essence, to truly uproot and move requires forming a new corporation in the state being relocated to, and dissolving the old corporation in the original state.

While that sounds easy enough, it really isn’t.  Each state’s Attorney General’s office governs nonprofit dissolution.  Dissolving an existing nonprofit corporation usually triggers the IRS-required asset-distribution clause in the Articles of Incorporation, requiring the nonprofit to submit a plan to the AG’s office for giving away its assets.  Given that the nonprofit is trying to move and not shut down, this is an obvious problem with no easy solution.

A Better Idea

For most organizations expecting to relocate, but who do not wish to start over, they can simply keep their corporation actively incorporated in the original state, and filing for permission in the new state to set up shop there as a “foreign” corporation (foreign by state, not nationality).  This is done by filing for a Certificate of Authority in the new state.

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This Post Has 30 Comments

  1. In addressing this issue of “relocating” the 501c3 from one state to another, I don’t see the recommendation of filing Articles of Incorporation in the new location, then merging the two organizations, and having the newer nonprofit be the surviving organization. Your thoughts? I’m addressing from CA to NC.

    1. Merging two organizations is indeed an option, but not one we recommend to accomplish the move of a single nonprofit. Mergers are legally tricky and usually messy. It’s a necessary reality when it is really two distinct nonprofits combining forces to proceed as one organization. But for one nonprofit moving from one state to another, it isn’t an advisable way to go when the other methods are just as effective, and usually less complicated.

    1. Not likely, Bryan. Moving is almost always going to entail dissolving and re-incorporating in the new state, or keeping your Vermont corporation and registering in Texas to do business there. I prefer that latter in most cases, because states often require you to follow through with asset distribution upon dissolution. You could always distribute your assets to the Texas corporation, but you may find any filings you have to do with Vermont to substantiate all that may be more work than simply filing foreign registration with Texas.

  2. Greg, Thank you for this wealth of information regarding the moving of our 501(c)3 organizations from one state to another. A couple questions please:
    1. What constitutes a legal registered agent in the former state where the original incorporation remains? Does it need to be another non-profit? Would a Board Member of the nonprofit suffice.? We have operated in CA for 30 years out of our home. Is a brick and mortar business address required to house the registered agent–or simply a friend of the nonprofit willing to receive the mail and ship it to the new location?
    2. How would we begin the process of becoming a foreign nonprofit in our new state of TX? Is it a fairly simple process–or would you recommend hiring an attorney to shepherd us through the process?
    Thanks in advance for your help.

    1. Great questions, Michael. You don’t have to have a brick and mortar business to act as an RA. Sounds like you have a board member willing to do that from their home address, which is perfectly fine. It just has to be a person or a business with a street address in the state, not a PO Box. Texas, like most states, allow “foreign” charities to register to do business with a location of operations in their state. Start here: https://www.sos.state.tx.us/corp/foreign_outofstate.shtml . It shouldn’t be a terribly difficult process, but let us know if you’d like us to take it on.

  3. We have operated a CA non profit for nearly 20 years, and we do everything virtually with clients. We moved to Arizona several years ago, and have still been filing our form 199 in CA, but haven’t registered in AZ as a “foreign” corporation. Our clients are all over the country, and as I said, all of our business is done virtually. Do I need to file as a foreign corp in AZ… ?

      1. Can a registered agent’s address also be the principal place of business for a MD nonprofit? Pretty much virtual operations across the country . . .

        1. I don’t think that will be a problem for you. It is common for nonprofits to list their business address as their registered agent address if they are not hiring out that service.

  4. “The act of dissolving a corporation terminates the existence of the legal entity, along with its federal EIN”
    Who said it terminate also the Federal EIN, why can’t you open another corporation in the other state with exact same name and keep the original Federal EIN, since the IRS does let you relocate Another state.

    1. Actually, the IRS says so. This is an area of considerable inconsistency on their part. While they say they can accommodate a dissolution and reorganization in another state with the same 501c3 determination letter, their own regs with regard to EINs say otherwise. In reality, our response that you quoted could have been worded better. EINs don’t actually get terminated along with the entity at dissolution, per se. EINs are permanently assigned to the entity that secured the EIN. If the entity dissolves, the EIN remains because it is used to identify past, present, and (potentially) future federal tax filings. However, the IRS clearly states that, “Regardless of whether the EIN is ever used to file Federal tax returns, the EIN is never reused or reassigned to another business entity. Opening a new corporation in another state is, by definition, creating a new business entity. But, Revenue Procedure 2018-15 essentially lets you do this. It’s not consistent, and most states push back on the entire idea anyway.

    1. We don’t work with gaming, so I cannot speak to California specifically. However, if California allows charities to conduct bingo in the state, being incorporated in Delaware will not cause you problems. You’ll just have to make sure you’re Delaware charity is properly registered in California.

  5. I have a question for clarity purpose: I have a nonprofit organization in New York, they have no financial activity since they have been incorporated for about a year. They would like to move the corporation to Tennessee. They will be totally moving out of New York. They have a 501c3 determination. Can they just dissolve the New York location and start the corporation in Tennessee? Especially if the name is available? or can a domestication or conversion be done in New York then file in Tennessee the documentation? Although, they’ve been around a year, they do not want to lose they corporate status time. Please reply.
    Thank you.

    1. This is difficult, because the IRS says you can, but many states won’t let you because of the requirement to distribute assets at termination. But in your case, it may be possible since it sounds like your NY nonprofit has no assets. It can still be a major headache, though, especially with getting the IRS to recognize your EIN as being valid for your Tennessee corporation when it was originally assigned to a NY org. You may find it easier to maintain the NY corporation with a registered agent in NY, then file in Tennessee for a Certificate of Authority to operate a NY nonprofit corporation in Tennessee.

  6. Hi,

    We have a non-profit that is incorporated in california. We want to operate in Arizona and have got a local address. It is telehealth – so no physical address is actually needed. What do we need to do ? Do we need to do Domestication in AZ or file any paperwork or add AZ as state ? I would prefer not to dissolve the non-profit since we have a history.

    1. You probably shouldn’t domesticate in AZ because it will dissolve the California corporation. Filing as a foreign (CA) corporation in AZ and maintaining status in both is your best route to go in most cases. You’ll need a registered agent in both, but that’s not a big deal.

  7. We are overseers and founders of a 501c3 ministry with a building as a center of operations in CT. We, as the owner/operators, moved last year from CT to NH. We still operate out of the building in CT through a team (and routine visits) even though we live in NH. The building is used for various nonprofit functions. The lease on the building renews next year, but due to various factors we may no longer have the building even though we still have a strong presence in CT.
    My question is can we keep the entity as a CT nonprofit, and what can we do with the problem of not having an address? Basically how would we eliminate the building and operate as we do without a specific address? In essence it becomes a virtual ministry. Can we move the permanent address to one of the ministers in CT? I assume it would be problematic to move the address to NH.

    1. Many nonprofits operate “virtually”. What that really means is the address is probably the same as the home address of the primary leader. If your base of operations leaves NH, you should register with CT’s corporations office as a NH corporation doing business in NH. You will probably use your home address (or someone else’s) as your registered address in NH. Keep you CT corporation alive by filing your corporation annual report every year, as well as your new NH foreign corporation report. You cannot reincorporate in NH without forfeiting your IRS 501(c)(3) determination, since it is permanently tied to the existing organization. It is almost always easier to register in the new state of operations.

  8. “You cannot withdraw your corporate status from California without dissolving the corporation, and thusly, terminating its 501(c)(3) status. ”

    what is your source that by dissolving your corporation you lose the 501(c)(3) status. from the IRS?

    1. It’s more a matter of logic than code. The act of dissolving a corporation terminates the existence of the legal entity, along with its federal EIN. It’s dead…permanently. 501(c)(3) determination is a tax-status granted by the IRS to a legal corporate entity (associated with a specific EIN) that qualifies as being organized for a sufficiently charitable purpose. If the corporation no longer exists, the tax status associated with it is not transferrable to another entity. It dies along with the corporation.

        1. Your points are valid, and these IRS procedures do apply. The problem, however, is that it really doesn’t matter what the IRS says in this case. Corporate law in the vast majority of states require a dissolving 501(c)(3) to divest of all assets by distributing them for charitable purposes, usually to another charity. So even if the IRS allows for continuity of EIN and even 501(c)(3) determination, the states don’t agree…and state corporate law trumps IRS regulations governing tax exemption. You could attempt to get around this by incorporating in the new state, dissolving in the old state, and donating all your assets into NewCo. The problem is, with an asset divestiture overseen by the former state’s AG, you cannot legitimately say there is continuity of operations.

          There are other areas of state/federal tension like this, but very few this extreme. We appreciate the IRS attempting to make this easier, but until state corporate law catches up, it’s really a moot point.

  9. “You can only ever be incorporated in a single state”
    Where is the source to the statement that you can only be incorporated in a single state?

    1. The source is US corporate law. Under both state and federal law, the act of incorporating creates a legal entity, or legal person (not to be confused with a human). You cannot incorporate in multiple states without creating multiple entities. It’s a one-and-done. Once incorporated, you are free to operate anywhere in the country, but virtually every state will require you to register as a foreign corporation (foreign state, not country) if that is not your state of incorporation.

  10. I understand the article… however, California (CA) has multiple charges and is adding more to be active there. In Florida (FL) they do not charge anything for the nonprofit to function. Can I register in both and then withdraw from CA after being established in FL? I would like a response, please.

    1. It depends on how you define “register”. You can be registered for fundraising purposes in one or many US states, depending upon your activity there. You can only ever be incorporated in a single state, however. If you incorporate in California, then move to Florida, you must get foreign corporation approval in Florida as a California nonprofit doing business in Florida. Both corporate statuses would have to be maintained. You cannot withdraw your corporate status from California without dissolving the corporation, and thusly, terminating its 501(c)(3) status. That’s the equivalent of starting all over again from scratch.

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