The Pension Protection Act of 2006 directed the IRS to revoke the tax exemption of any nonprofit that is required to file an annual information return but failed to do so for three consecutive years. Revocation is automatic and mandatory under the law.
As a result hundreds of thousands of exempt organizations had their tax-exempt status revoked. Many were smaller organizations that were not aware of the 2006 law change that required all exempt organizations (except churches) to file annual returns, regardless of how small their annual receipts may be.
Here at Treasurer’s Briefcase we're working hard to continually improve our record keeping solution for small nonprofits so we can make compliance Simple, Fast and Easy! It appears the IRS is also trying.
Relief is on the WayOn January 2 this year the IRS issued guidance in Revenue Procedure 2014-11 to clarify and streamline the process for small non-profits to have its tax-exempt status reinstated, on a retroactive basis. With a retroactive reinstatement, there is no gap in the organization's tax-exempt status. Meaning, there would be no need to file returns as a taxable organization and donors contributions will still be deductible.
This streamlined process applies to small nonprofits with annual gross receipts below $200,000, and total year-end asset value below $500,000.
A small nonprofit may apply for retroactive reinstatement by filing a new Form 1023 (or 1024), along with Forms 990-EZ for those past years in which it was required, but missed. If the nonprofit was eligible to file Form 990-N for any or all of the missed years, those do not have to be filed in arrears. Reasonable cause for failing to file the missed tax returns will now be assumed, and does not need to be demonstrated by a written submission. Also, late filing penalties for the prior year Form 990-EZs will be abated.
You must pay the user fees when filing your 1023 or 1024. Those fees are $400 for nonprofits with annual gross receipts of less than $10,000 and $850 for those with gross receipts of more than $10,000.
There is a time limit: in order to take advantage of this process, the new application must be filed within 15 months of the revocation. If it is filed later, the organization must affirmatively demonstrate reasonable cause for failing to file its returns in order for tax-exempt status to be restored retroactively. That means the organization must show that it exercised "ordinary business care and prudence" in determining, and attempting to comply with, its reporting requirements.
The IRS is working to provide a more current list by including organizations on their Automatic Revocation List within a month of the effective date of revocation. We suggest if you aren’t certain whether you have been revoked, and if so when, that you review the list to see if you still have time to benefit from the IRS’ revenue procedure.
Check the revocation list by clicking the link below:
If you're group has been revoked Lauer-Millen, CPAs can assist you in filing the filing of a 1023 or 1024 for a fee. Contact Dave Lauer @ firstname.lastname@example.org