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Not-for-Profit: Reinstatement of Tax-Exempt Status after Automatic Revocation for Non-filing


1/9/14

Synopsis:

An IRS revenue procedure (Rev. Proc. 2014-11) explains how an organization whose tax-exempt status has been automatically revoked because it did not file required Form 990 series returns or notices for three consecutive years may apply for reinstatement of exempt status.

Background:

When an exempt organization that is required to file an annual return (e.g., Form 990, 990-EZ, or 990-PF) or submit an electronic notice (Form 990-N, or e-postcard) does not do so for three consecutive years, its federal tax-exempt status is automatically revoked. To regain tax-exempt status, the organization must submit an application for tax-exemption with the IRS, even if it was not originally required to file an application. For example, if the tax-exempt status of a subordinate organization included in a group exemption letter is automatically revoked, the subordinate organization must apply for reinstatement of its tax-exempt status on its own behalf.

Issue:

The following four procedures are provided for organizations seeking reinstatement of their exempt status.

1. Streamlined retroactive reinstatement

An organization that was eligible to file either Form 990-EZ, Short Form Return of Organization Exempt from Income Tax, or Form 990-N, e-Postcard, for each of the three consecutive years that it failed to file and that has not previously had its tax-exempt status automatically revoked may apply to have its exempt status reinstated retroactively if it applies not later than 15 months after the later of the date of the letter from the IRS revoking the organization’s exempt status (CP120A Notice) or the date on which the organization’s name is posted on the IRS website’s Auto-Revocation List. Also, the IRS will not impose the penalty for failure to file Form 990-EZ for the three consecutive years if the organization files paper Forms 990-EZ for all three years (except that an organization is not required to file Form 990-EZ or 990-N for any year it was eligible to file a Form 990-N).

2. Retroactive reinstatement (within 15 months)

An organization that is not eligible to use the streamlined process (such as those that were required to file Form 990 or 990-PF for any of the three years) may apply for retroactive reinstatement if it applies within the 15-month period described above. The application must include a statement establishing reasonable cause for its failure to file an annual return or notice for at least one of the three years, and a statement that it has filed paper annual returns for all taxable years within the three-year period and any subsequent taxable years before the application is filed for which required returns were due and not filed. If these requirements are satisfied and exempt status is reinstated retroactively, the IRS will not impose penalties for failure to file annual returns for the three year period. 

3. Retroactive reinstatement (after 15 months)

This process is the same as the process for retroactive reinstatement within 15 months, except that the organization must establish reasonable cause for failure to file an annual return or notice for all three years.

4. Postmark date reinstatement

An organization may apply for reinstatement effective with the postmark date of its application.

Effective date – The revenue procedure is effective for applications submitted after January 2, 2014.

Transition relief – For pending applications, the IRS will apply the reinstatement processes to the extent they benefit an organization’s ability to be retroactively reinstated. For organizations that have been previously reinstated from the postmark date but would have satisfied the streamlined retroactive reinstatement process requirements, they will be retroactively reinstated with no further action. Organizations that have been previously reinstated from the postmark date but would have satisfied either the retroactive reinstatement within 15 months process requirements or the retroactive reinstatement after 15 months process requirements may reapply by no later than May 2, 2014.

What Does CohnReznick Think?
Organizations will need to submit an application for tax-exempt status to the IRS within the 15-month period described above in order to take advantage of the streamlined retroactive reinstatement process or the retroactive reinstatement within 15 months process. For organizations eligible to reapply for exemption under the transition rule, the application will need to be submitted by May 2, 2014. Organizations that are retroactively reinstated will need to comply with the paper Form 990 series filing requirements described in the revenue procedure.

Contact:

Please visit CohnReznick’s Not-for-Profit and Education Industry Practice webpage and contact Phil Royalty, Director, at 916-930-5222 or Thomas Lanning, Partner, at 646-834-4108.


Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 

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