Help! Our nonprofit organization lost tax-exempt status!

Since 2011, more than 500,000 tax-exempt entities have lost their tax-exempt status automatically.

This started in 2011 when the IRS announced that 275,000 nonprofit groups — about 18% of the nation’s tax-exempt organizations — lost their tax-exempt status because they failed to file IRS Form 990s for three consecutive years. Since then, organizations have continued to automatically lose their tax-exempt status for failure to file required IRS returns.

What does it mean that a nonprofit’s tax-exempt status has been revoked?

1. It means that your nonprofit is no longer exempt from federal income tax and may have to pay corporate income tax on annual revenue. Your nonprofit may be required to file one of the following federal income tax returns and pay any applicable income taxes:

Form 1120, U.S. Corporation Income Tax Return, due by the 15th day of the 3rd month after the end of your organization’s tax year, or
Form 1041, U.S. Income Tax Return for Estates and Trusts, due by the 15th day of the 4th month after the end of your organization’s tax year.

2. It may mean that any state tax exemption your nonprofit received that is dependent on federal tax-exempt status is also now revoked.

3. It means that your nonprofit will not be listed in on the IRS list of organizations eligible to receive tax-deductible charitable contributions.

4. It means that private foundations are unlikely to give a grant directly to your nonprofit that has lost its tax-exempt status, because federal tax law imposes an excise tax on grants made to organizations that are not tax-exempt.

5. If you have a fiscally sponsored project with another organization, and that organization has had its tax-exempt status revoked, you may need to find a new fiscal sponsor.

What are we called now? If we lost tax-exempt status, are we still a nonprofit corporation?

Many nonprofits are organized and operated as both nonprofit corporations and tax-exempt entities. “Nonprofit corporate” status and “tax-exempt” status are two different things.

Nonprofit status refers to incorporation status under state law.

Tax-exempt status refers to federal income tax exemption under the Internal Revenue Code.

You may have lost tax-exempt status with the IRS, but you may still be a nonprofit corporation in good standing with your state. Check with your state’s Secretary of State. If your group hasn’t filed the proper forms with the IRS, you may have also missed the required filings due to the Secretary of State.

Learn more about the difference between a “nonprofit corporation” and a “tax-exempt entity” here.

What should you do now?

If your nonprofit organization has had its tax-exempt status automatically revoked, and wants to be reinstated, you must file a new exemption application and pay the appropriate fees. 501(c)(3) entities will file IRS Form 1023. Other organizations will file IRS Form 1024 or another application.