Tax Law Blog: Reinstating Tax-Exempt Organizations

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Section 6033(j)(1) of the Internal Revenue Code automatically revokes the tax-exempt status of an organization for failure to file the required annual return (Form 990, Form 990-EZ, or Form 990-PF) for three consecutive years. Revenue Procedure 2014-11 provides four procedures for organizations to apply for reinstatement of their tax-exempt status that was automatically revoked. Three of the procedures allow for retroactive reinstatement. 

Streamlined Retroactive Reinstatement Procedure  

An organization that was eligible to file either Form 990-EZ or Form 990-N for each of the three consecutive years it failed to file, and that has not previously had its tax-exempt status automatically revoked may apply for reinstatement by submitting Form 1023 or 1024 within 15 months of the revocation letter with the appropriate user fee. The IRS advises writing “Revenue Procedure 2014-11, Streamlined Retroactive Reinstatement” at the top of the application to facilitate processing. Additionally, penalties will not be imposed for failing to file the Form 990-EZ if the organization properly files the Forms for the years it failed to file after receiving reinstatement. (If the organization was able to file Form 990-N, there is no requirement to retroactively file.) (See Section 4 of the Revenue Procedure.)

Retroactive Within 15 Months of Revocation

If an organization is not eligible under Section 4, it may apply for retroactive reinstatement under Section 5 by meeting the following requirements:  (1) filing Form 1023 or 1024 within 15 months from revocation, (2) including the appropriate user fee, (3) including a statement of "reasonable cause" explaining the failure to file for at least one of the three years it failed to file (See Section 8.01), (4) filing the missing annual returns (writing “Retroactive Reinstatement” at the top of the returns), and (5) including with the application a statement that the missing annual reports have been filed. Penalties will be waived if the organization meets the 5 requirements and is retroactively reinstated. (See Section 5.)

Retroactive Reinstatement More Than 15 Months After Revocation

An organization applying for reinstatement more than 15 months after revocation may receive retroactive reinstatement by following the same procedure in Section 5, but must include a statement of "reasonable cause" for all three years it failed to file (See Section 8.02). Again, penalties will be waived if the organization meets the 5 requirements and is granted retroactive reinstatement. (See Section 6)

Post-Mark Date Reinstatement 

Organizations unable to meet the above requirements can apply for reinstatement by Filing the application and user fee, but such reinstatement will be effective only from the postmark of the new application.

Reasonable Cause

To establish the reasonable cause required in Section 5 and 6, the organization must show it exercised “ordinary business care and prudence” in attempting to comply with reporting requirements, and must state what steps have been taken to avoid future failures. Ordinary business care could include good faith reliance on erroneous information from the IRS, a history of complying with reporting requirements, and/or attempting to prevent failure combined with acting promptly upon discovering the failure and implementing safeguards to ensure future compliance. Additionally an officer, director or other official of the organization must sign under penalty of perjury stating to the best of his/her knowledge the statements in the application for reinstatement are true and complete. (See Section 7.)

Effective Date

The Rev. Proc is effective for all applications for reinstatement submitted after January 2, 2014. If an organization was previously granted reinstatement from the postmark date and would have satisfied the Section 4 Streamlined Procedure, the organization will automatically be reinstated retroactively to the revocation date. Organizations reinstated effective from the postmark date that would have qualified for retroactive reinstatement under section 5 or 6 may reapply by submitting the application previously filed and a copy of the reinstatement letter by May 2, 2014 and complying with the other requirements of the applicable section. The user fee is waived in these circumstances.

If you are unsure of your organization's filing requirements, or want more information on reinstatement after a failure to file, the IRS website has a chart to determine your organization’s Form 990 filing requirements and also the full revenue procedure

 

Topics:  Exempt Organizations, IRC, Tax Exemptions

Published In: Nonprofits Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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