The Pension Protection Act of 2006 (the Act) added an annual filing requirement for tax-exempt organizations that previously did not have to file an annual information return because their gross receipts were below a certain level. The Act also added a provision that any tax-exempt organization that fails to file its required annual return for three consecutive years automatically loses its exempt status. These changes were effective for taxable years beginning after 2006.
In Notice 2011-44, the IRS provided guidance for organizations that lost their tax-exempt status for failure to make the required annual filings and wanted to apply for reinstatement. An organization that wanted to have its exemption be reinstated retroactively to the date of revocation was required to include a statement of facts and circumstances indicating reasonable cause for failing to file the required returns for each of the three consecutive years and safeguards were now in place to ensure that the organization would not fail to file in the future. The organization also had to submit properly completed returns for the taxable years that the organization failed to file in and after the three-year period. The request for retroactive reinstatement had to be submitted to the IRS within 15 months of the date on which the IRS posted the name of the organization on the automatic revocation list.
In Notice 2011-43, the IRS also provided transitional relief for small organizations that lost their exemption for failure to file the Form 990-N for 2007, 2008, and 2009. Small organizations that met those requirements for transitional relief would be deemed to have reasonable cause for their failure to file and would have their exemptions reinstated retroactive to the date of revocation. This transitional relief ended on Dec. 31, 2012.
On Jan. 2, 2014, the IRS issued Revenue Procedure 2014-11 to make the reinstatement process more efficient for revoked organizations, including those applying for retroactive reinstatement.
Under the new procedures, any organization that was eligible to file either the Form 990-N or the Form 990-EZ for each of the three consecutive years that it failed to file, and that has not had its tax-exempt status previously revoked, may have its tax-exempt status reinstated retroactively if it submits its application (with the appropriate user fee) no more than 15 months after receiving a revocation letter from the IRS or the posting of its name to the IRS automatic revocation list, and files paper Form 990-EZ for any of the three consecutive years that it was not eligible to file Form 990-N. If its application is approved, the organization is deemed to have reasonable cause for failure to file, and the reinstatement will be retroactive to the date of revocation.
If an organization is not eligible for the relief given to small organizations described above, the organization can have its tax-exempt status retroactively reinstated if it:
- submits its application (with the appropriate user fee) no more than 15 months after receiving a revocation letter from the IRS or the posting of its name to the IRS automatic revocation list;
- files paper annual returns for all of the three consecutive years and any taxable years after such period but before the postmark date of the application for which returns were due and not filed; and
- can show reasonable cause for failure to file for at least one of the three consecutive years in which it failed to file.
An organization that applies for retroactive reinstatement more than 15 months after receiving a revocation letter from the IRS or the posting of its name to the IRS automatic revocation list must be able to show reasonable cause for all three of the consecutive years that it failed to file. If any organization cannot meet any of the above tests for retroactive reinstatement, it can apply for reinstatement of its tax-exempt status, but the reinstatement will be effective only as of the postmark date of the application.
For any organization that has an application for retroactive reinstatement that is currently pending before the IRS, the IRS will apply the provisions of this Revenue Procedure if it benefits the organization. If any organization already applied for and received reinstatement based on the postmark date on its application and the organization would have met the streamlined criteria for small organizations, the effective date of the reinstatement will be changed to the revocation date. If any organization would have met one of the other two tests for retroactive reinstatement, the organization may re-apply by re-submitting its application (but is not required to pay a second user fee) and complying with the other requirements on or before May 2, 2014.
These new procedures create an easier process for organizations to obtain reinstatement of their tax-exempt status (and also will help the IRS reduce its backlog of reinstatement applications). Any organization that has had its exemption revoked for failure to file annual returns should be aware of these new procedures, including organizations that have already started or completed the reinstatement process.
Nonprofit and Tax-Exempt Organizations Group
Our nonprofit and tax-exempt organizations group provides advice and guidance that enable charities and other nonprofits to operate more efficiently and effectively in today’s increasingly complicated, regulated, and competitive environment.