Dormant Entities and Weighing the Risk of Revocation—Private Letter Ruling 202437007 and Its Impact on Keeping Dormant Entities Active

• December 19, 2024

• Michael Kuczynski , Polsinelli PC

Over the years, organizations have commonly kept a dormant entity with an Internal Revenue Service (IRS) Determination Letter active rather than voluntarily relinquishing its tax-exempt status and dissolving. If the organization had a future need for a tax-exempt entity, it could either repurpose one of these dormant entities with similar charitable purposes or file a Form 8940 Request for Miscellaneous Determination, rather than a Form 1023 Application for Recognition of Exemption Under Section 501(c)(3), to update the purposes as needed in a quicker and less intrusive process. Private Letter Ruling (PLR) 202437007 has called this practice into question, as the IRS revoked the exempt status of a dormant entity, finding that it failed the “operational test” for tax exemption, as it had no charitable activities or related expenses.

ARTICLE TAGS

• Tax and Finance Practice Group
• Tax and Nonprofit