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This month the IRS released a list of about 275,000 organizations that have automatically had their tax-exempt status revoked, including about 1,400 in Idaho. These revocations result from a change to filing requirements established by the Pension Protection Act of 2006. The Pension Protection Act required tax-exempt organizations to file an annual information return with the IRS and imposed a filing requirement on small non-profits with revenues under $25,000 for 2007, the first year organizations of this size had been subjected to such a requirement. Additionally, the Pension Protection Act mandated automatic revocation of tax-exempt status for organizations who fail to file their required returns for three consecutive years.
Organizations that have failed to file the required returns have been included on the list of automatic revocations of tax-exempt status on the IRS website.
If your organization is on this list, don't panic!
If you believe you have documentation that can prove you filed the required returns (such as an IRS receipt for a filed return), you can call the IRS's customer service line at (877) 829-5500 or send the documentation directly to the IRS by mail at Internal Revenue Service, 1973 North Rulon White Blvd. M/S 6552, Ogden, UT 84404, or by fax at (801) 620-5555.
If you have not filed the annual returns required or cannot produce sufficient documentation to prove otherwise, the IRS has created a retroactive reinstatement process for organizations that have lost their tax-exempt status. Notices 2011-43 and 2011-44, released June 9, 2011, outlines the following processes for retroactive reinstatement of tax-exempt status:
Small Organizations: Nonprofit organizations with average gross annual receipts under $50,000 can qualify for small organization transitional relief. Organizations who lose their tax-exempt status for failing to file required notices qualify for the IRS' retroactive relief program if they meet the following criteria:
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The organization was not required to file annual information returns (such as Form 990, Return of Organization Exempt from Income Tax or Form 990-EZ, Short Form Return of Organization Exempt from Income Tax) for taxable years beginning before 2007.
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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. Generally organizations (other than private foundations and most section 509(a)(3) supporting organizations) with annual gross receipts that were normally not more than $25,000 in such taxable years would have been eligible to file a Form 990-N e-Postcard.
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On or before December 31, 2012, the organization submits to the IRS a properly completed and executed application for reinstatement of tax-exempt status.
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The process for applying for retroactive reinstatement is similar to the application process for new organizations. Organizations must file Form 1023 or 1024 depending on the type of exemption sought. The IRS requests that organizations write "Automatically Revoked" on the reinstatement application and on the mailing envelope. Applicants that seeking retroactive reinstatement under this notice must write ?Notice 2011-43? on the top of the application and attach the following statement:
"[Name of Organization] was not required to file annual information returns for taxable years beginning before 2007; was eligible in each of its taxable years beginning in 2007, 2008, and 2009 to file a Form 990-N e-Postcard; and had annual gross receipts of normally not more than $25,000 in each of its taxable years beginning in 2007, 2008, and 2009."
Reasonable Cause: Organizations that do not qualify under the small organization transitional relief program above can request retroactive reinstatement under the reasonable cause process. To qualify, organizations must demonstrate that they had reasonable cause for failing to file a return over the entire three year period and must submit the request for reinstatement within 15 months of the later of the date of the IRS revocation letter or the date when the organization is included on a publicly released list of revocations by the IRS.
To establish reasonable cause, an organization must provide evidence that it exercised ordinary business care and prudence in determining and attempting to comply with its reporting requirements for each year it failed to file but was nevertheless unable to comply with its reporting obligations. In determining whether an organization has established reasonable cause, the IRS considers all of the facts and circumstances, including, but not limited to, the following factors that weigh in favor of finding reasonable cause:
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The organization?s failure was due to its reasonable, good faith reliance on erroneous written information from the IRS, stating that the organization was not required to file a return or notice under section 6033, provided the IRS was made aware of all relevant facts.
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The failure to file the returns or notices arose from events beyond the organization?s control that made it impossible for the organization to file returns or notices for each of the three years at issue and over the entire three-year period.
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The organization acted in a responsible manner by undertaking significant steps to avoid or mitigate the failure to file the required returns or notices and to prevent similar failures in the future, including, but not limited to?
- Attempting to prevent an impediment or a failure, if it was foreseeable;
- Acting as promptly as possible to remove an impediment or the cause of the reporting failure, once the failure was discovered; and
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After the failure was discovered, implementing sufficient safeguards to ensure future compliance with reporting obligations.
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Aside from the three consecutive years in which the organization failed to file returns or notices, the organization has an established history of complying with its reporting requirements (if any) under section 6033 and/or any other applicable reporting or other requirements under the Code.
The process for applying for retroactive reinstatement based on reasonable cause is more involved than the process applicable to small organizations. To apply for retroactive reinstatement based on reasonable cause, organizations must:
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Submit the appropriate application for exemption (Form 1023 or Form 1024) and appropriate application fee. The IRS requests that you write "Automatically Revoked" on the application and on the mailing envelope.
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Include a written statement setting forth all of the facts that support the claim for reasonable cause, including a detailed description of all of the facts and circumstances that led to the failure to file each required return and the continuous failure, the discovery of the failures, and the steps taken to avoid or mitigate the failures.
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Include a written statement describing the safeguards the organization has put into place to ensure that the organization will not fail to file returns or notices in the future.
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Submit evidence to substantiate all material aspects of the written statements above.
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File a completed Form 990 (or Forms 990-EZ or 990-PF, whichever is applicable) for all taxable years during and after the consecutive three-year period that the organization failed to file an information return.
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File a completed Form 990-EZ for all years that the organization was eligible to file a Form 990-N e-Postcard but failed to file one.
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Submit an original declaration dated and signed by an officer, director, trustee or other authorized official as follows:
I, _______________(Name), ________________ (Title) declare, under penalties of perjury, that I am authorized to sign this request for retroactive reinstatement on behalf of [Name of Organization], and I further declare that I have examined this request for retroactive reinstatement, including the written explanation of all the facts and information pertaining to the claim for reasonable cause and the evidence to substantiate the claim for reasonable cause, and to the best of my knowledge and belief, this request is true, correct and complete.
Expedited Application Processing: Generally, applications for nonprofit exemptions are processed in the order received by the IRS. However, if the organization requests expedited processing in writing and the IRS believes there is a compelling reason to process an application ahead of others, they can grant an application expedited processing. Compelling reasons include the following:
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A pending grant, where failure to secure the grant will have an adverse impact on the organization's ability to continue operating. If you believe your organization qualifies under this requirement, please include the following information in your request for expedited processing:
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The name of the person or organization committed to giving the grant or asset,
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The amount of the grant or the value of the asset,
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The date the grant will be forfeited or permanently redirected to another organization,
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The impact on the organization's operations if it does not receive the grant/asset, and
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The signature of a principal officer or authorized representative.
Granting expedited processing is at the discretion of the IRS.
For more information about retroactive reinstatement or assistance with the reinstatement process, please contact Robert Shappee at robertshappee@harriscpas.com.
