On June 7, 2011, the IRS announced that approximately 275,000 organizations automatically lost their tax-exempt status under new rules enacted in 2006 because they failed to file the required annual federal returns for three consecutive years. The IRS also announced new procedures for an organization to apply for reinstatement of tax-exempt status, including transitional relief for small organizations that failed to file Form 990-N.
On June 9, 2011, the IRS posted its list of organizations that are no longer tax-exempt on its website. The lists are divided into Excel spreadsheets by state and include the name, last known address, EIN, subsection code, and date of revocation. The IRS records indicate that these organizations had a filing requirement and failed to file for 2007, 2008, and 2009.
The Pension Protection Act of 2006 (the Act) added a 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. These organizations not otherwise required to file a Form 990, 990-EZ or 990-PF must make an electronic notice filing on Form 990-N. The Act also added a new provision that any organization that fails to file an annual return for three consecutive years automatically loses its exempt status. These changes made by the Act were effective for taxable years beginning after 2006.
Because the automatic revocation occurs on the due date for filing the third annual return, the first crop of organizations (i.e., those on a calendar tax year) that failed to make the required filings for three consecutive years lost their tax-exempt status as of the due date of their 2009 annual return or May 17, 2010.
In Notice 2011-44, the IRS provides guidance for organizations that lost their tax-exempt status and want to apply for reinstatement. An organization must reapply on Form 1023 (for 501(c)(3) organizations) or Form 1024 (for other types of organizations exempt under section 501(c)), even if the organization was not required to submit the application for its original exemption. An organization must also pay the appropriate filing fee. See Rev. Proc. 2011-8.
An organization may also request its exemption to be reinstated retroactively to the date it was revoked. The organization’s request for retroactive reinstatement must include a statement of facts and circumstances indicating reasonable cause for failing to file the required returns, safeguards to ensure that the organization will not fail to file in the future, and properly completed returns for the taxable years that the organization failed to file in and after the three-year period. The organization must submit the request for retroactive reinstatement within 15 months of the date on which the IRS posts the name of the organization on the revocation list (September 9, 2012 for organizations posted as of June 9, 2011).
The IRS has requested comments on Notice 2011-44 and suggestions for future guidance on Internal Revenue Code section 6033(j) regarding the provisions for the three-year automatic revocation. Comments must be submitted on or before August 19, 2011, by mail, hand delivery, or email, with “Notice 2011-44” in the cover page or subject line.
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. To be eligible for the transitional relief, the organization must (1) not have been required to file an annual return for taxable years beginning before 2007, (2) have been eligible to file Form 990-N for taxable years beginning in 2007, 2008, and 2009, and (3) submit an exemption application on Form 1023 or Form 1024 seeking reinstatement with “Notice 2011-43” written at the top. This exemption application must be filed on or before December 31, 2012.
Small organizations that meet the requirements for transitional relief will be deemed to have reasonable cause for their failure to file and will have their exemptions reinstated retroactive to the date of revocation. These organizations are also eligible for a reduced fee of $100 for the exemption application under Revenue Procedure 2011-36.
If donors made deductible donations before June 9, 2011 to an organization that now appears on the List of Revoked Organizations, these contributions are tax-deductible. Contributions to an organization made on or after the date that the organization is added to the List, however, will not be tax-deductible by the donors. The IRS intends to update Publication 78, Cumulative List of Organizations, to reflect the current listings, but donors may not rely on previous listings of an organization in Publication 78 after the name of the organization is published on the List of Revoked Organizations.
These notices and procedures are scheduled to be published in the Internal Revenue Bulletin on June 20, 2011. Any tax-exempt organizations that are uncertain whether their exemption has been revoked should check the List of Revoked Organizations on the IRS website.