If you forget to file your not-for-profit’s Form 990, 990-EZ or 990-N with the IRS three years in a row, you could face automatic revocation of your tax-exempt status. Forgetting to file can happen — particularly with newer organizations that are still trying to get a handle on all the financial and regulatory requirements of running a not-for-profit. However, revocation of your tax-exempt status is serious because it means your donors can’t deduct their contributions. But it doesn’t have to be final.
Essential Forms and Dates
Assuming you lost your exempt status for failing to file, you can regain it with another filing. Talk to your tax advisor about submitting either 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) or Section 521 of the Internal Revenue Code,” based on your type of not-for-profit.
Smaller organizations that were eligible to file either Form 990-EZ or 990-N for each of the three consecutive years and that hadn’t previously had their tax-exempt status automatically revoked, can apply to have their status retroactively reinstated effective from the revocation date. To apply for this retroactive reinstatement of your tax-exempt status, file the applicable form within 15 months or the later of 1) the date of the IRS revocation letter, or 2) the date the IRS posted your organization’s name on its website.
If you aren’t eligible for retroactive reinstatement, your organization’s activities between the revocation date and the reinstatement date will be considered taxable. This includes donors’ contributions.
When you file for recognition of exemption, attach a detailed statement that provides reasonable cause for failing to file required returns in each of the three consecutive years. You should state the facts that led to each failure and the continual failure, discovery of the failures and steps taken to avoid or mitigate them.
You’ll need to attach a statement that describes safeguards put in place and steps taken to avoid future failures as well as evidence to support all material aspects of those two statements. In addition, include properly completed and executed tax returns for all taxable years during and after the three-year period your organization failed to file.
Also submit an original declaration dated and signed by an authorized person in your organization such as an officer or director. (See IRS Notice 2011-44 for the required wording.)
Assuming you file correctly and submit all required paperwork that shows your organization qualifies as a not-for-profit, it’s likely to regain its tax-exempt status. At that point, the IRS will issue a new determination letter and update its records that confirm your eligibility to receive tax-deductible contributions. Generally, the effective date of reinstatement is the date your exemption application was submitted. If you’re having trouble keeping up with IRS filings or have questions about not-for-profit regulations, contact us for help.
To learn more about how PKF Texas serves not-for-profit organizations, visit www.pkftexas.com/NotForProfit.