Automatic Revocation – How to Have Your Tax-Exempt Status Reinstated
Organizations that fail to file Form 990 for three consecutive years will have their tax-exempt status automatically revoked by the IRS. A loss of exempt status may result in the following:
- Donors will no longer be able to deduct contributions
- Foundations may not be willing or able to make grants
- Required to pay federal income taxes on revenue
- Subject to state income taxes, sales taxes, property taxes
- Harm to reputation
You do not want to lose your tax-exempt status!
If your organization has lost its exempt status because it failed to file the required returns, you can apply for reinstatement. How you apply for reinstatement depends on your organization’s specific circumstances.
Streamlined Retroactive Reinstatement
If your organization was eligible to file Form 990-EZ or 990-N for the three years that caused the revocation, you may have your tax-exempt status retroactively reinstated to the date of the revocation if you have not previously had your tax-exempt status automatically revoked.
You will need to complete and submit the appropriate tax-exempt application (Form 1023, Form 1023-EZ, Form 1024, or Form 1024-A) with the appropriate user fee no later than 15 months after the later of the date of the Revocation Letter (CP-120A) or the date the organization appeared on the Revocation List on the IRS website. The user fee for Form 1023-EZ is $275. The user fee for all other forms is $600.
In addition, the IRS will not impose the Section 6652(c) penalty for failure to file annual returns for the three consecutive taxable years that caused the organization to be revoked if the organization is retroactively reinstated under this procedure and files properly completed and executed paper Forms 990-EZ for all such taxable years. (For any year for which the organization was eligible to file a Form 990-N, the organization is not required to file a prior year Form 990-N or Form 990-EZ to avoid penalties.) The organization should write “Retroactive Reinstatement” on Form 990-EZ and mail them to: Department of the Treasury, Internal Revenue Service, Ogden, UT 84201-0027.
Retroactive Reinstatement Process (Within 15 Months)
If your organization is not eligible for the streamlined retroactive reinstatement, you may have your tax-exempt status retroactively reinstated to the date of revocation if you:
- Complete and submit the appropriate tax-exempt application (Form 1023, Form 1024, or Form 1024A) with the appropriate user fee not later than 15 months after the later of the date on the Revocation Letter (CP-120A) or the date the organization appeared on the Revocation List on the IRS website.
- Include with the application a statement establishing that the organization had reasonable cause for its failure to file the required annual return for at least one of the three consecutive years in which it failed to file.
A reasonable cause statement establishes that the organization exercised ordinary business care and prudence in determining and attempting to comply with its annual reporting requirement. The statement should have a detailed description of all of the facts and circumstances about why the organization failed to file, how it discovered the failure, and the steps it has taken or will take to avoid or mitigate future failures.
- Include with the application a statement confirming that it has filed the required returns for those three years and for any other taxable years after such period and before the post-mark date of the application for which required returns were due and not filed.
- File properly completed and executed paper annual returns for the three consecutive years that caused the revocation and any following years. The organization should write “Retroactive Reinstatement” on these returns and mail them to: Department of the Treasury. Internal Revenue Service Center, Ogden, UT 84201-0027.
When completing Form 1023, you should check the box on Schedule E for Section 5. For organizations submitting 1024-A electronically, check the box for Section 5 in Part VI. For organizations submitting Form 1024, check the box for Section 5 in Part VI.
In addition, the IRS will not impose the Section 6652(c) penalty for failure to file annual returns for the three consecutive taxable years that caused the organization to be revoked if the organization is retroactively reinstated under this procedure.
Retroactive Reinstatement (After 15 Months)
If it has been more than 15 months after the later of the date on the Revocation Letter (CP-120A) or the date the organization appeared on the Revocation List on the IRS website, you may have your tax-exempt status retroactively reinstated to the date of revocation if you:
- Satisfy all of the requirements described under the “Retroactive Reinstatement (Within 15 Months)” procedure EXCEPT that the reasonable cause statement the organization includes with its application must establish reasonable cause for its failure to file the required annual return for all three consecutive years in which it failed to file.
When submitting Form 1023, you should the box on Schedule E. For organizations submitting 1024-A, check the box for Section 6 in Part VI. For organizations submitting Form 1024, check the box for Section 6 in Part VI.
In addition, the IRS will not impose the Section 6652(c) penalty for failure to file annual returns for the three consecutive taxable years that caused the organization to be revoked if the organization is retroactively reinstated under this procedure.
Post-Mark Date Reinstatement
If your organization is unable to apply for reinstatement under any of the circumstances above, you may apply for reinstatement effective from the post-mark date of your application. This is not the date of your revocation as is under the other procedures above. Under this method, your organization would not be considered a tax-exempt organization from the date its tax-exempt status was revoked through the post-mark date of your reinstatement application.
You may apply for reinstatement effective from the post-mark date of the application if you:
- Complete and submit the appropriate tax-exempt application (Form 1023, Form 1024, or Form 1024A) with the appropriate user fee.
You should check the box for Section 7 on Schedule E for Form 1023 or Part V for Form 1023-EZ. For organizations submitting 1024-A electronically, check the box for Section 7 in Part VI. For organizations submitting Form 1024, check the box for Section 7 in Part VI.
Your organization can have your tax-exempt status automatically revoked more than once you fail to file the required returns for three consecutive years beginning with the year in which the IRS approves the application for reinstatement. Please make sure your organization files the required Form 990 each year to avoid automatic revocation.
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