The IRS Paves the Paths to Reinstatement of Tax-Exempt Status

Tax Exempt Status - Delaware CPA FirmIf you’re one of the over 500,000 organizations that have lost their tax-exempt status under IRS Code Section 6033(j)and are wandering out in the wilderness, different paths have been laid out for you to regain your eligibility.  Even if your organization has not lost tax-exempt status, be sure to read on to ensure you do not fall into this group. As mentioned in a previous blog posts, 990 Changes – Better Read Each One, in The Belfint Nonprofit Ledger the IRS requires most organizations that are exempt from federal income tax under Internal Revenue Code section 501(a) to file one of the information returns from the Form 990 series. Failure to do so for three consecutive years will lead to automatic revocation of that tax-exempt status under Section 6033(j). We outlined in the aforementioned blog entry how to prevent this from happening. If your tax-exempt status was revoked, IRS Revenue Procedure 2014-11 allows the following processes:

Streamlined Retroactive Reinstatement Process
  • Eligible to file 990-EZ or 990N during the years that caused revocation
  • Must not have had tax-exempt status revoked prior to this instance
  • Must apply for reinstatement (Form 1023 or 1024) within 15 months of being notified of revocation
  • File Form 990-EZ for the three years that caused revocation if not eligible to file Form 990-N in those years
  • If approved, late-filing penalties will not be assessed and tax-exempt status will be reinstated retroactively to the date of revocation
Retroactive Reinstatement Process
  • Must not have had tax-exempt status revoked prior to this instance
  • Provide a reasonable cause for failure to file for at least one of the three consecutive that caused revocation if filing within 15 months of being provided notice (do so for all three years if 15 months have passed)
  • File all a return for all years required (the three years that caused revocation + all returns since revocation)
  • If approved, late-filing penalties will not be assessed and tax-exempt status will be reinstated retroactively to the date of revocation
Postmark Date Process
  • File for reinstatement using Form 1023 or 1024
  • If approved, tax-exempt status will be reinstated from postmark date

Receiving retroactive reinstatement will allow donations and other income received in the gap between the date of revocation and reinstatement to be exempt from taxation. The IRS has paved the path to reinstatement of your tax-exempt status. Be sure to discuss with your CPA regarding which path is right for you.

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For additional information regarding nonprofit services, visit our website or contact our compliance examination team.   Photo by Kevin Krebs (License)

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