Use It Or Lose It
The IRS recently issued a listing of approximately 275,000 organizations that have automatically lost their tax-exempt status due to non-filing of required annual reports for three consecutive years (Automatic Revocation of Exemption List). This inclusive list represents organizations of all sizes and exemption types that, according to IRS records, had a filing requirement but did not file the required returns or notices for the 2007, 2008, and 2009 tax years. Procedures have been issued by the IRS relating to the reinstatement process and, additionally, the IRS has reportedly decided not to impose any late-filing penalties against organizations found on the list and will not require filing of delinquent returns which were outstanding as of the date of the automatic revocation of tax-exempt status. An exception exists, however, for certain larger organizations seeking retroactive reinstatement.
In order for organizations to come back into compliance and re-acquire tax-exempt status, a new application for recognition of exemption must be completed and filed along with the appropriate user fee payment (Notice 2011-44). The user fee is either $400 or $850 depending on the size of the organization. If approved, the effective reinstatement date of tax-exempt status will generally be the date the organization filed its application for reinstatement. An organization can petition to have its tax-exempt status reinstated effective from the date of automatic revocation, however, this requires additional information and a detailed reasonable cause statement which is subject to approval by the IRS.
Smaller organizations, generally those with annual gross receipts of not more than $50,000 ($25,000 for tax years beginning before January 1, 2010), have been afforded transitional relief as part of this process with respect to requesting retroactive reinstatement and reduced user fees. These are the organizations that were required to file the Form 990-N (“e-Postcard”) for tax years beginning in 2007, 2008, and 2009 but failed to do so for that three year period. Organizations qualifying for transitional relief (Notice 2011-43) that apply for reinstatement by December 31, 2012, will be treated by the IRS as having established reasonable cause for purposes of obtaining a retroactive tax-exempt reinstatement date. In addition, the applicable user fee is reduced to $100.
Revocation of tax-exempt status can have numerous adverse effects on an organization. In addition to its income now being taxable, a revoked organization may also lose sales tax and real estate tax exemptions, eligibility to receive donor deductible contributions, and more. If you find that your organization has had its tax-exempt status automatically revoked, please contact us to discuss how we can help get your organization’s tax-exempt status reinstated.