Understanding Automatic Revocation and How to Reinstate Tax-Exempt Status
Here are the key information that nonprofits should be aware of revocation and reinstatement of tax-exempt status
For a nonprofit organization maintaining tax-exempt status is crucial for financial sustainability and credibility. However, there are instances where an organization may face automatic revocation of its tax-exempt status, leading to significant consequences.
In this blog post, we’re discussing what automatic revocation entails and the steps to reinstate tax-exempt status.
Automatic Revocation — When Does it Occur?
As you may know, nonprofits that have obtained tax-exempt status — including charities, social welfare organizations, and religious institutions are required to submit their annual information to the IRS using a 990 return.
Failure to do so will obviously result in penalties. Additionally, if these nonprofits fail to file required annual tax returns (such as Form 990, Form 990-PF, Form 990-EZ, or Form 990-N) for three consecutive years, they will be subject to automatic revocation. But what exactly does automatic revocation entail?
Automatic revocation refers to the process by which the IRS terminates a nonprofit organization’s tax-exempt status, resulting in the organization no longer being exempt from federal income taxes and being treated as a taxable entity.
Impact of Automatic Revocation
The consequences of automatic revocation might be severe for a nonprofit organization such as,
- Loss of tax-exempt status resulting in potential tax liabilities such as paying taxes along with filing one of these forms
Form 1120 — U.S. Corporation Income Tax Return
Form 1041 — U.S. Income Tax Return for Estates and Trusts
- The organization will not be eligible for tax-deductible contributions
- The state and local laws may also affect the organization that lost its tax-exempt status
- Loss of public trust
- Reduced eligibility for grants and donations
How to Know If the Organization’s Tax-Exempt Status has been Revoked?
So, suppose you need to figure out whether an organization is tax-exempt or not before making any contributions. In that case, you can check out the IRS Auto-Revocation List, which is updated monthly and available on its website. This list contains details of organizations whose tax-exempt status has been automatically revoked. It includes information such as
- The organization’s name
- Last known address
- Employer Identification Number (EIN)
- Exemption subsection
- Effective date of revocation
- The date it was published on the list
Furthermore, the IRS sends a letter to each organization at its last known address, informing them that their tax-exempt status has been automatically revoked due to failure to file required annual returns or notices for three consecutive years.
How to Reinstate the Tax-exempt status?
Reinstating tax-exempt status requires proactive steps. The process typically involves filing the appropriate forms, paying any required fees or penalties, and demonstrating compliance with filing requirements for the missed years.
If your organization’s tax-exempt status has been automatically revoked, you’ll need to apply for reinstatement to the IRS. There are four cases,
Streamlined Retroactive Reinstatement — For Organizations Filing Forms 990-EZ and 990-N
Use the Streamlined Retroactive Reinstatement Process if you’ve never had your tax-exempt status withdrawn before. File Form 1023, Form 1024, or Form 1024-A within 15 months of receiving the revocation letter or the date you’ve listed on the IRS website’s Revocation List.
Retroactive Reinstatement (Within 15 months) — For Organizations Filing Forms 990 and 990-PF
You can apply for Retroactive Reinstatement within 15 months by filing the appropriate form and including a declaration explaining any valid reasons for not filing the required returns for at least one of the three consecutive years leading to the revocation.
Retroactive Reinstatement (After 15 Months)
Follow the requirements for reinstatement by the IRS within 15 months and provide a declaration for all three consecutive years.
Post-Mark Date Reinstatement
Organizations can apply for reinstatement effective from the post-mark date of their application by filing the necessary forms.
E-file with Tax990 to avoid Automatic Revocation
One effective way to avoid automatic revocation and ensure timely filing is by using an electronic filing service like Tax990.
Tax990 is an IRS-authorized e-file provider that simplifies the process of preparing and filing Form 990, offering a user-friendly platform that guides you through the filing requirements, reducing the risk of missed deadlines and potential revocation.
