Relief Available for Nonprofits That Lost Their Tax Exemption

There is some good news for nonprofits that lost their tax-exemption for failing to file annual returns for three years.   The IRS has made it easier for nonprofits to have their tax exempt status restored to the date when they lost it.

Organizations that fail to file a 990, 990-EZ or a 990-N postcard, for three consecutive years, automatically lose their tax exemption.  Once exempt status is lost, an organization must file a new application form and pay an ‘application fee’ to the IRS.  Organizations that find themselves in this predicament, have difficult questions to face about the time between losing tax exemption and regaining it, such as:  do they need to file for-profit tax forms?  Are donations received during that period tax deductible?

On January 2, 2014, the IRS released a new set of procedures that will make it a lot easier to have reinstatement backdated to the date when tax exemption was lost, thus eliminating the period of uncertain status.

 See:  http:// www. irs.gov/pub/irs-drop/rp-14-11.pdf 

For smaller organizations (those that file 990-N or 990-EZ), an application for reinstatement can be backdated to the day when exemption was lost, so long as the application is filed within 15 months of the Revocation Notice date.  For larger organizations, they must also file within the deadline, but must file missing 990s and show ‘reasonable cause’ for failing to file at least one of the three years.  If the 15 month deadline is missed, then organizations must show ‘reasonable cause’ for all three years that they failed to file and file missing returns.

Of course there are more details and requirements to be aware of and any organization that has had its tax exempt status revoked should seek professional help as soon as possible.

January, 2014

Practice Area(s): Non Profit and Tax Exempt

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