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Regaining Tax-Exempt Status After Failing To File Form 990s

Non-profit organizations can lose their tax-exempt status in a variety of ways — including participating in lobbying and campaign activities, receiving excessive unrelated business income, and allowing board members to financially benefit from their positions. The most common reason non-profits lose their status, however, is failure to file an annual IRS Form 990 or 990-N for three consecutive years. If your organization has landed on the IRS’ revocation list for this reason, do not panic. The process for reinstatement is relatively simple.

IRS Reinstatement

Assuming you lost your exempt status for failing to file, you can regain it with another filing; either Form 1023 ‘Application for Recognition of Exemption Under Section 501(c)(3)’ or Form 1024 ‘Application for Recognition of Exemption Under Section 501(a),’ based on your type of non-profit.

In addition, unless you apply for retroactive reinstatement, all of your organization’s activities between the revocation and the reinstatement date will be considered taxable. And all contributions made during that period will not be deductible by donors. You may apply for retroactive reinstatement, effective the date of the automatic revocation, by filing the applicable form within 15 months or the later of the date of 1) the IRS revocation letter, or 2) the date the IRS posted your organization’s name on its website.

Providing Reasonable Cause

When you file the correct form, attach a detailed statement that provides reasonable cause for failing to file required returns in each of the three consecutive years. You should state the facts that led to each failure and the continual failure, discovery of the failures, and steps taken to avoid or mitigate them.

You also will need to attach:

  • A statement that describes safeguards put in place and steps taken to avoid future failures
  • Evidence to support all material aspects of those two statements
  • Properly completed and executed paper tax returns for all taxable years during and after the three-year period your organization failed to file
  • An original declaration dated and signed by an authorized person in your organization such as an officer or director (see IRS Notice 2011-44 for the required wording)

To expedite your application, write “AUTOMATICALLY REVOKED” at the top of the form and envelope and include the specified fee.

Serious Repercussions

Losing your tax-exempt status can have serious repercussions. You would likely owe corporate tax on any revenue as well as back taxes and penalties, and donors can no longer make tax-exempt gifts. So, if your non-profit’s status has been revoked, address the matter immediately. Contact us for help with the reinstatement process.

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