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Abstract: 

Under certain circumstances, it may make sense for a for-profit entity to convert to tax-exempt status: many educational entities, for example, are unable to benefit from tax-free gifts, or qualify for grants, or earn accreditation, while operating a school or other educational program as a for-profit corporation. This article describes the benefits of, process for, and potential pitfalls arising from converting a for-profit business into a tax-excempt enterprise. It examines the key disinction between “nonprofit” and “tax-exempt,” permitted uses, state-law conversions, amending articles of incorporation; obtaining tax-exempt status for a non-profit; self-declaring; taxes due at conversion under IRC §337 and key revenue rulings on valuations, including Rul. 76-91 and Rev Rul. 76-411.

Keywords: “Nonprofit” and “tax-exempt;” IRC §506; annual Form 990 filing requirements; Form 8976; the IRC §337 “Toll” and valuation

Affiliations:  1: Strasburger & Price, LLP; 2: Strasburger & Price, LLP.