IRS Identifies Organizations that Have Lost Tax-Exempt Status
The Internal Revenue Service announced that it has released a listing of approximately 275,000 organizations that under the law have automatically lost their tax-exempt status because they have not filed annual reports as legally required for the past three years. If an organization appears on the list of auto-revoked organizations it is because IRS records indicate the organization has a filing requirement and has not filed the required returns or notices for 2007, 2008 and 2009.
The IRS has issued guidance on how organizations can apply for reinstatement of their tax-exempt status, including retroactive reinstatement. In addition, the IRS announced transition relief for certain smaller tax-exempt groups – those with annual gross receipts of $50,000 or less for 2010 and eligible to file Form 990-N, the e-Postcard. The relief allows eligible revoked groups to gain retroactive tax-exempt status and pay a reduced application fee of $100 rather than the typical $400 fee. More information, including FAQs and a Fact Sheet, can be found on the IRS website.
The Internal Revenue Service announced that approximately 275,000 organizations under the law have automatically lost their tax-exempt status because they did not file legally required annual reports for three consecutive years. The IRS believes the vast majority of these organizations are defunct, but it also announced special steps to help any existing organizations to apply for reinstatement of their tax-exempt status.
Congress passed the Pension Protection Act (PPA) in 2006, requiring most tax-exempt organizations to file an annual information return or notice with the IRS. For small organizations, the law imposed a filing requirement for the first time in 2007. In addition, the law automatically revokes the tax-exempt status of any organization that does not file required returns or notices for three consecutive years.
For several years, the IRS has made an extensive effort to inform organizations of the changes in the law through multiple outreach and education avenues, including mailing more than 1 million notices to organizations that had not filed. In addition, last year the IRS published a list of at-risk groups and gave smaller organizations an additional five months to file required notices and come into compliance. About 50,000 organizations filed during this extension period. Overall, the IRS believes the vast majority of small tax-exempt organizations are now in compliance with the 2006 law.
“During the past several years, the IRS has gone the extra mile to help make tax-exempt groups aware of their legal filing requirement and allow them additional time to file,” IRS Commissioner Doug Shulman said. “Still, we realize there may be some legitimate organizations, especially very small ones, that were unaware of their new filing requirement. We are taking additional steps for these groups to maintain their tax-exempt status without jeopardizing their operations or harming their donors.”
If an organization appears on the list of organizations whose tax-exempt status has been automatically revoked, it is because IRS records indicate the organization had a filing requirement and did not file the required returns or notices for 2007, 2008 and 2009.
An organization must apply to have its tax-exempt status reinstated, even if it was not originally required to file an application for exemption. It must:
Apply for recognition of tax exemption by filing Form 1023 (if applying under section 501(c)(3)), or Form 1024 or a letter (if applying under a different Code section), regardless of whether the organization was originally required to apply for exemption; and Pay the appropriate user fee. (See Revenue Procedure 2011-8 and Revenue Procedure 2011-36).
In addition, write “Automatically Revoked” at the top of your application and on the mailing envelope. This will ensure that your application goes to a specialist trained to handle these applications. Small organizations eligible for transition relief will instead want to write “Notice 2011-43” at the top of the application and on the mailing envelope. See Notice 2011-43.
In addition, small organizations are eligible for the transition relief in Notice 2011-43 are also eligible for a reduced user fee, if they meet the criteria in Rev. Proc. 2011-36.
An organization may also request retroactive reinstatement as part of its application.
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Automatic Revocation - How to Have Your Tax-Exempt Status Retroactively Reinstated
Organizations whose tax-exempt status was automatically revoked because they did not file required 990 series returns or notices for three consecutive years can apply for reinstatement of their tax-exempt status.
In a newRevenue Procedure 2014-11, the IRS explains the four procedures an organization may use to apply for reinstatement.
Streamlined Retroactive Reinstatement
Organizations that were eligible to file 990-EZ or 990-N (ePostcard) for the three years that caused their revocation may have their tax-exempt status retroactively reinstated to the date of revocation if they:
·Have not previously had their tax-exempt status automatically revoked.
·Complete and submitForm 1023orForm 1024with the appropriateuser feenot later than 15 months after the later of the date of the organization’s Revocation Letter (CP-120A) or the date the organization appeared on the Revocation List on the IRS website.
These organizations should write on the top of the Form 1023 or Form 1024, “Revenue Procedure 2014-11, Streamlined Retroactive Reinstatement,” and mail the application and user fee to:
Internal-Revenue-Service P.O.-Box-12192 Covington, KY 41012-0192
In addition, the Service 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 the Forms 990-EZ and mail them to:
Department-of-the-Treasury Internal-Revenue-Service Ogden, UT 84201-0027
Retroactive Reinstatement Process (Within 15 Months)
Organizations that cannot use the Streamlined Retroactive Reinstatement Process (such as those that were required to file Form 990 or Form 990-PF for any of the three years that caused revocation or those that were previously auto-revoked) may have their tax-exempt status retroactively reinstated to the date of revocation if they:
· complete and submitForm 1023orForm 1024with the appropriateuser feenot later than 15 months after the later of the date on the organization’s 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 a required annual return for at least one of the three consecutive years in which it failed to file.
·Include with the application a statement confirming that it has filed 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
These organizations should write on the top of the Form 1023 or Form 1024, “Revenue Procedure 2014-11, Retroactive Reinstatement,” and mail the application and user fee to:
Internal-Revenue-Service P.O.-Box-12192 Covington, KY 41012-0192
In addition, the Service 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)
Organizations that apply for reinstatement more than 15 months after the later of the date on the organization’s revocation letter (CP-120A) or the date the organization appeared on the Revocation List on the IRS website may have their tax-exempt status retroactively reinstated to the date of revocation if they:
·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 a required annual return forall threeconsecutive years in which it failed to file.
In addition, the Service 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
Organizations may apply for reinstatement effective from the post-mark date of their application if they:
·Complete and submitForm 1023orForm 1024with the appropriateuser fee.
These organizations should write on the top of the Form 1023 or Form 1024, “Revenue Procedure 2014-11, Reinstatement Post-Mark Date,” and mail the application and user fee to:
Internal-Revenue-Service P.O.Box-12192 Covington, KY 41012-0192
What’s a Reasonable Cause Statement?
A reasonable cause statement establishes that an 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 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. For a detailed explanation see Section 8 of Revenue Procedure 2014-11.
Pending Reinstatement Applications and Previously Granted Applications
The reinstatement processes above apply to pending reinstatement applications to the extent they benefit an organization’s ability to be retroactively reinstated.
For organizations that have been previously reinstated from the post-mark date but would have satisfied the streamlined retroactive reinstatement process requirements, they will be retroactively reinstated with no further action. They should keep their reinstatement determination letters and a copy of Revenue Procedure 2014-11.
For organizations that have been previously reinstated from the post-mark date but would have satisfied either the retroactive reinstatement within 15 months process requirements or the retroactive reinstatement after 15 months process requirements, they may reapply under Revenue Procedure 2014-11 on or before May 2, 2014. See Section 10 of Revenue Procedure 2014-11 for details.
Avoid Being Automatically Revoked Again – File Annual Returns
An organization can be automatically revoked again if it fails to file required returns for three consecutive years beginning with the year in which the IRS approves the application for reinstatement. Organizations seeking reinstatement of tax-exempt status after a subsequent revocation are not eligible to use the Streamlined Retroactive Reinstatement Process.