The Internal Revenue Service (IRS) announced that approximately 275,000 organizations have automatically lost their tax-exempt status under the law because they did not file legally required annual reports for three consecutive years. While many of these organizations may have already dissolved, those that have continuing operations are given an opportunity to apply for reinstatement of their tax-exempt status.
As a result of the passage of the Pension Protection Act of 2006, an organization’s exempt status will automatically be revoked if it fails, for three consecutive years, to comply with the annual filing requirements applicable to it. The first three-year time period for many organizations ended December 31, 2009, with the annual filing being due May 17, 2010. Organizations were given until October 15, 2010 to make the necessary filings to avoid automatic revocation. Those organizations for which the IRS has no records of these required filings have automatically lost their tax-exempt status and will appear on a list published on www.IRS.gov.
WHAT IT MEANS FOR ORGANIZATIONS
For organizations appearing on the list, their tax-exempt status is revoked effective on the date on which the last of the three annual filings was due. For example, organizations with a calendar fiscal year end, the last of the three annual filings was due May 17, 2010, resulting in revocation as of that date. Organizations may seek reinstatement of their tax-exempt status by filing an application for reinstatement (Form 1023 for 501(c)(3) organizations or Form 1024 for all others) with the IRS. The application fee is $100, $400 or $850 depending on the size of the organization. Organizations whose tax-exemption is not reinstated and who continue to receive donations or other income may have taxable income.
The IRS issued guidance for the retroactive reinstatement of an organization's tax-exempt status, meaning reinstatement would be as of the date of revocation. Relief for retroactive reinstatement depends on the size of the organization.
•Organizations with annual gross receipts of $50,000 or less will be treated as having established reasonable cause for the failure to file for three consecutive years, resulting in retroactive reinstatement, if the organization (1) was not required to file annual information returns for taxable years beginning in 2007; (2) was eligible in each of the taxable years beginning in 2007, 2008 and 2009 to file a Form 990-N e-Postcard; and (3) had annual gross receipts of normally not more than $25,000 in each if its taxable years beginning in 2007, 2008 and 2009. These applications for reinstatement must be filed before December 31, 2012.
•Organizations with annual gross receipts over $50,000 must show reasonable cause for the failure to file. Requests for retroactive reinstatement must include (a) certain representations by the organization; (b) properly completed Form 990 or Form 990-EZ for each applicable tax period; and (c) evidence that the organization exercised ordinary business care and prudence in determining and attempting to comply with the reporting requirements for each of the three years and over the entire three year period.
WHAT IT MEANS FOR DONORS
This listing should have little, if any, impact on donors who previously made deductible contributions to automatically revoked organizations because donations made prior to the publication of an organization’s name on the list remain tax-deductible. Going forward, however, organizations that are on the automatically revoked list that do not receive reinstatement are no longer eligible to receive tax-deductible contributions and donations to such organizations will not be tax-deductible to the donor. Donors can no longer rely on such organization's listing on IRS Publication 78 or the IRS determination letter issued to the organization prior to the date of automatic revocation. For more information on reliance on Publication 78, see Revenue Procedure 2011-36.