• Reinstatement of Exempt Status Following Revocation for Failure to File a Return
  • December 10, 2012 | Author: Katherine E. Ruhl
  • Law Firm: Faegre Baker Daniels - Indianapolis Office
  • Since the enactment of the Pension Protection Act in 2006, most tax-exempt organizations are required to file an annual return with the IRS — there are very few exceptions. Depending on the size of an organization, the return may be as simple as filing an "e-postcard" (or Form 990-N — Electronic Notice (e-postcard) for Tax-exempt Organizations Not Required to File Form 990 or 990-EZ). Failure to file a return with the IRS for three consecutive years, however, will result in the automatic revocation of an organization's tax-exempt status. The IRS has reported that more than 270,000 organizations have received notices of tax-exempt revocation for failing to file returns.

    If an organization's tax-exempt status is revoked, it may seek reinstatement of that status with the IRS. This process will entail the completion and submission of an exemption application and will include filing fees. There is some transitional relief with respect to filing requirements and fees for small organizations (those with annual gross receipts of not more than $50,000) if they apply for reinstatement before December 31, 2012. See IRS Notice 2011-43. For other organizations, a request for reinstatement includes the following:

    • A completed Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, or Form 1024, Application for Recognition of Exemption Under Section 501(a);
    • A written statement explaining why the organization failed to file returns  ("a statement of reasonable cause") and evidence substantiating the same;
    • A written statement describing safeguards that the organization will implement so as to prevent the organization from failing to file a return in the future and evidence substantiating the same;
    • Completed annual returns (such as Forms 990, 990-EZ or 990-PF) for all years during and after the consecutive three-year period that the organization was required, but failed to file returns; and
    • A specific declaration stipulating that the application is true and accurate signed by an officer, director or trustee of the organization.

    See IRS Notice 2011-44.

    The IRS has a very helpful web page that addresses the reinstatement process. This web page will guide you through the process of seeking reinstatement and includes a video that outlines the process.