New IRS Guidance on Automatic Revocation of Tax-Exempt Status

New IRS Guidance on Automatic Revocation of Tax-Exempt Status

Generally, an exempt organization is required to file an annual information return. [IRC § 6033] The Pension Protection Act of 2006 added IRC Section 6033(i) which requires organizations that are not required to file an annual information return because their gross receipts fall below certain thresholds  to file an annual notification.  This annual notification is satisfied by filing the Form 990-N (e-Postcard), a Form 990 or Form 990-EZ.  Tax-exempt status is automatically revoked if the organization fails to file the required annual return or notification for three consecutive years. [IRC § 6033(j)]   To obtain reinstatement of its tax-exempt status, the organization must apply for reinstatement with the IRS. If an organization applying for reinstatement of tax-exempt status can show reasonable cause for its consecutive filing failures, the organization's tax-exempt status may, in the discretion of the Secretary, be reinstated retroactive to the date of the automatic revocation. [IRC § 6033(j)(3)] Until recently, exempt organizations that have had their exempt status automatically revoked have been without guidance.  The IRS, in a burst of activity, has issued guidance on the automatic revocation of exempt status.

For small tax-exempt organizations (normally has annual gross receipts of not more than $50,000 in its most recently completed taxable year) Notice 2011-43 provides that a small organization is deemed to have established reasonable cause for failing to file a Form 990-N e-Postcard or an annual return if each of the following criteria are satisfied:

  1. The organization was not required to file annual information returns for taxable years beginning before 2007;
  2. The organization was eligible in each of its taxable years beginning in 2007, 2008, and 2009 to file a Form 990-N e-Postcard (rather than an annual information return); and
  3. On or before December 31, 2012, the organization submits to the IRS a properly completed and executed application for reinstatement of tax-exempt status.  

Organizations submitting an application for reinstatement must use the same forms that are filed by all other applicants for tax-exemption. The application must be submitted, whether or not the organization was originally required to apply with the IRS for recognition of tax-exemption.

The IRS issued Notice 2011-44 to provide guidance to all organizations other than a small organization that qualifies for relief described in Notice 2011-43.  Those organizations seeking reinstatement of tax-exempt status under IRC Section 6033(j) must apply for reinstatement using the same forms that are filed by all other applicants for tax exemption. [Notice 2011-44, §4]  An organization seeking reinstatement of its tax-exempt status must submit the appropriate application regardless of whether the organization was originally required to apply with the IRS for recognition of tax exemption. Applications for reinstatement of tax-exempt status should have "automatically revoked" written on the top of the application form and on the envelope. An organization seeking to have its tax-exempt status reinstated must submit a request for retroactive reinstatement with its application for reinstatement of tax-exempt status. Notice 2011-44, Section 5.01 lists the information which must be included in the request for retroactive reinstatement.  The Notice also lists the factors the IRS will consider in determining if there was reasonable cause for the consecutive failure to file. [Notice 2011-44, §5.02].

The Internal Revenue Service is required to publish and maintain a list of organizations that have had their federal tax-exempt status automatically revoked for failing to file an annual return or notice for three consecutive years. On June 8, 2011, the IRS published the initial list of organizations whose tax-exempt status was automatically revoked.  The IRS web site now includes an Automatic Revocation of Exemption List.

Lastly, the IRS web site posts include "Automatic Revocation for Non-Filing: Frequently Asked Questions" and a Fact Sheet - Annual Form 990 Requirements for Tax-Exempt Organizations - to further assist organizations who have had their tax-exempt status automatically revoked.

RELATED LINKS: For further information and analysis of tax-exempt organization filing requirements and related issues, see:

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  • 06-23-2011

The Transitional Relief the IRS is offering small revoked groups is one of the best deals I have seen in my four decades of professional involvement with non-profit taxes. If your revoked non-profit client can honestly say there is still a need for the non-profit, and they feel they can muster the human and other resources needed to sustain it, encourage them not to pass up this opportunity to regain their tax exempt status. There are no shortcuts. A new exemption application will have to be prepared, and an IRS User Fee will have to be paid. But for organizations with annual gross receipts normally less than $50,000, the User Fee will be reduced to only $100 and reinstatement will be retroactive. The offer is only good through December 31, 2012. The details are in IRS Notice 2011-43