Generally, most tax-exempt organizations are required to file an annual return or notice with the IRS. Since 2010, the IRS has revoked the exemption of hundreds of thousands of organizations for failing to file the applicable annual return for three consecutive years. Once an organization’s tax-exempt status has been revoked, it may suffer a number of consequences including owing federal income tax and no longer offering a deduction to donors.

In January, the IRS published improved guidance for reinstatement procedures. These procedures, though more lenient, may be difficult to understand and maneuver. If your organization’s exempt status has been revoked, the first step is to determine which of these procedures fit.

Below is a chart to assist you in navigating the retroactive reinstatement procedures. Organizations applying for reinstatement within 15 months of automatic revocation should consider the first two procedures. An organization that applies for reinstatement after 15 months may skip to the third procedure.  

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The new procedures also outline a process for organizations that have already been reinstated as of the postmark date of their applications for reinstatement, but before the effective date of Revenue Procedure 2014-11 (January 3, 2014), and have a taxable gap between their revocation and reinstatement period. For those organizations that would have satisfied the Streamlined Retroactive Reinstatement requirements, reinstatement goes back to the revocation date automatically (eliminating the taxable gap). However, for other organizations which can establish reasonable cause, reinstatement will only go back to the revocation date if such organization submits a copy of the Form 1023 or 1024 it previously filed to receive reinstatement and complies with the other requirements of the applicable section of Revenue Procedure 2014-11 (see Table Sections II and III above) on or before May 2, 2014. Note that the user fee is waived.

After your organization’s exempt status has been reinstated, it is important to remember to file timely annual returns.  An organization can be automatically revoked again if it fails to file the required returns for three consecutive years, beginning with the year in which the IRS approves reinstatement.

 

For Additional Information:

IRS: How to Have Your Tax-Exempt Status Retroactively Reinstated

Eve Rose Bornstein: New Retroactive Reinstatement Process(es)