Automatic Revocation of Tax-Exempt Status and How to Get Reinstated
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Small nonprofits that skip their annual IRS filing for a few years can lose tax-exempt status without any hearing. This is called automatic revocation. This post explains how it happens, what it changes, and the four ways to apply for reinstatement.
What automatic revocation is
An organization that does not file a required Form 990, 990-EZ, 990-PF or 990-N for three consecutive years automatically loses its federal tax-exempt status. The revocation is effective on the original filing due date of the third missed return or notice.
The IRS sends the organization a letter about the revocation and adds its name to a published list of revoked organizations. That list is updated monthly. The law does not provide an appeal process, and the IRS cannot undo a revocation that was made correctly.
What changes after revocation
- The organization is no longer exempt from federal income tax. It may have to file Form 1120 or Form 1041 and pay tax.
- It is not eligible to receive tax-deductible contributions, and it is removed from Publication 78. Donors can still deduct gifts made before the organization's name appeared on the revocation list.
- State status can be affected too. In California, the Franchise Tax Board separately revokes state exemption when an organization with an FTB 199N requirement does not file for three consecutive years.
How to check your status
The IRS points organizations to its Tax Exempt Organization Search to check their status.
Filing late returns does not reverse a revocation
Before revocation, a late return still counts. The Form 990-N FAQ says it is critical to file within the three-year period. After revocation, filing the missing returns on their own does not bring back your exemption. You need to apply for reinstatement.
The four reinstatement options
The IRS procedures come from Revenue Procedure 2014-11. Each option requires an exemption application and the user fee: Form 1023 or 1023-EZ for section 501(c)(3) organizations, Form 1024-A for section 501(c)(4) organizations, or Form 1024 for other section 501(a) organizations. Form 1023 is filed electronically through Pay.gov.
Option 1: Streamlined retroactive reinstatement
This option is for organizations that were eligible to file Form 990-EZ or 990-N for each of the three years that caused the revocation and that have never been automatically revoked before.
- Apply no later than 15 months after the later of the date on your revocation letter (CP-120A) or the date your organization appeared on the revocation list.
- Form 1023-EZ may be used for this option.
- No reasonable cause statement is required.
- To avoid penalties, file paper Forms 990-EZ for the three years, marked "Retroactive Reinstatement" and mailed to the IRS in Ogden, UT 84201-0027. For any year in which the organization was eligible to file Form 990-N, you do not need to file a prior-year 990-N or 990-EZ.
If approved, exemption is reinstated back to the date of revocation.
Option 2: Retroactive reinstatement within 15 months
This is for organizations that cannot use Option 1. For example, they had to file Form 990 or 990-PF in one of the three years, or they were automatically revoked before.
- Apply within the same 15-month window.
- Include a statement showing reasonable cause for failing to file for at least one of the three years.
- Include a statement that all required returns for the three years, and for later years through the application's postmark date, have been filed. File those returns on paper, marked "Retroactive Reinstatement".
- Form 1023-EZ is not listed for this option.
Option 3: Retroactive reinstatement after 15 months
The requirements are the same as Option 2, except that the reasonable cause statement must cover all three years, not just one.
Option 4: Reinstatement from the postmark date
Any organization can use this option. It does not reinstate status back to the revocation date. Exemption starts on the postmark date of the application. Form 1023-EZ may be used.
Where 990.tax fits
990.tax does not prepare reinstatement applications, and the paper returns described above are filed by mail, not e-file. Where 990.tax helps is before revocation. If you are behind by one or two years, file now:
- Form 990-N ($19.99) for years when gross receipts were normally $50,000 or less. The IRS website cannot accept prior-year e-Postcards, but approved e-file providers such as 990.tax can.
- Form 990-EZ ($89.99) for years with gross receipts under $200,000 and total assets under $500,000. IRS e-file for 990-EZ covers the current tax year and the two prior tax periods only.
See how to file a past-due Form 990-N.
Preventing a repeat
Reinstatement does not change the filing rule. Missing three consecutive years again leads to the same result. Put the due date on a shared calendar, hand the login to the next treasurer, and file each year once the books close.
Email questions to [email protected].
Disclaimer: This post is for general information and is not legal or tax advice. Consult a tax professional about reinstatement.