If an organization fails to file Form 990 three years in a row, the IRS will automatically revoke its tax-exempt status. Since 2011, hundreds of thousands of tax-exempt organizations across the country automatically have lost their tax-exempt status for this reason. (Learn more about it here: You’ve Automatically Lost 501(c)(3) Tax-Exemption Status – Now What?)
The IRS has no appeal process for automatic revocations due to failure to file an appropriate Form 990 for three years. Without this status, your organization could be subject to paying income taxes. Additionally, you can avoid paying user fees and filing additional documents with the IRS by submitting your Form 990 each and every year.
1. Communicate with Donors and Stakeholders.
Tell your donors and be transparent in explaining that your nonprofit’s tax-exempt status has been revoked – and explain why. You can assure donors that while donations given before the effective date of revocation are still deductible, future gifts are not, until such time as the nonprofit receives recognition from the IRS that is it once again tax-exempt.
If your donors need more information on the deductibility of their gifts, refer them to IRS Publication 526 (describes that gifts are deductible only when given to a “qualified” organization) and IRS Publication 557 (p. 20). Donors to charitable nonprofit organizations may rely on the organization’s determination letter or listing in IRS Publication 78 to determine the deductibility of contributions until the IRS publishes a notice on IRS.gov that the organization’s 501(c)(3) exempt status has been automatically revoked.
2. File Your Tax Returns.
The nonprofit must file the appropriate tax return and pay the income taxes applicable to the period of time during which the nonprofit is not tax-exempt.
3. Get Your Tax-Exempt Status Reinstated.
To get reinstated, your organization must file a new exemption application and pay the appropriate fees. Most 501(c)(3) entities will file IRS Form 1023; other exempt organizations will file IRS Form 1024. Call us to get started on the reinstatement process.
Seek “Retroactive Reinstatement.” Nonprofits that re-apply may request to the IRS that the reinstatement of their tax-exempt status be retroactive to the date of their original tax-exempt recognition, but the IRS will grant that request only if it determines that there was “reasonable cause” for the nonprofit to have missed the filing deadlines. Make sure to follow instructions on the IRS website for requesting “retroactive reinstatement” of your organization’s tax-exempt status.
4. Consider Fiscal Sponsorship in the Meantime.
Nonprofits may also want to explore partnering with another nonprofit to serve as their “fiscal sponsor” to receive donations on their behalf that will support the nonprofit’s activities until such time as the nonprofit is recognized as tax-exempt once again. Contact us to learn more about fiscal sponsorship.
Revoked in Error?
If you think your tax-exempt status was revoked in error, contact the IRS at (877) 829-5500 or Internal Revenue Service Exempt Organizations Determinations P.O. Box 2508 Cincinnati, OH 45201.
The Cullinane Law Group works with nonprofit corporations, including those who may have lost their tax-exempt status status. We are located in Texas and we help nonprofit and tax-exempt organizations nationwide.