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Procedures provided for reinstating automatically-revoked tax-exempt status

January 3, 2014

In a Revenue Procedure, IRS has provided procedures for retroactively reinstating the tax-exempt status of organizations that had that status automatically revoked under Code Sec. 6033(j)(1) for failure to file the required annual returns for three consecutive years.

Background. Most organizations that are exempt from tax under Code Sec. 501(a) are required under Code Sec. 6033(a) to file annual information returns. Under Code Sec. 6033(j), an exempt organization’s failure to file information returns for three consecutive years will result in the revocation of the organization’s exempt organization status under Code Sec. 501(a).

Over the past few years, IRS has attempted to inform organizations of their filing responsibilities, and the consequence of failing to file. Nonetheless, many organizations have failed to comply and have had their tax-exempt status automatically revoked.

New guidance. IRS has provided three procedures for reinstating the tax-exempt status of organizations that have had their tax-exempt status automatically revoked. An organization applies for reinstatement using the applicable application—i.e., Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code; Form 1024, Application for Recognition of Exemption Under Section 501(a); or any other prescribed form or procedure regularly used to apply for recognition of exempt status as provided in Rev Proc 2013-9, 2013-2 IRB 255, or its successor.

In addition, an organization may apply for a non-retroactive reinstatement of its tax-exempt status effective from the date on which it files an application for reinstatement of its tax-exempt status (i.e., postmark date) at any time by using the process described in Rev Proc 2014-11, Sec. 7 (i.e., postmark date process), regardless of whether it is eligible to use any of these three retroactive reinstatement processes.

An organization whose tax-exempt status has been reinstated may have its tax-exempt status automatically revoked again if it fails to file required annual returns or notices for another three consecutive tax year period beginning with the tax year in which IRS approves its application for reinstatement of tax-exempt status. (Rev Proc 2014-11, Sec. 9).

Streamlined retroactive reinstatement process. An organization that was eligible to file either Form 990-EZ, Short Form Return Of Organization Exempt from Income Tax, or Form 990-N (i.e., 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 use the following streamlined retroactive reinstatement process: It must submit an application for reinstatement with the appropriate fee no later than 15 months after the later of the date of IRS’s revocation letter or the date on which IRS posted the organization’s name on the Revocation List (i.e., the list of organizations that have had their tax-exempt statuses revoked under Code Sec. 6033(j)(1)). If approved, the organization will be deemed to have reasonable cause for its failures to file Forms 990-EZ or 990-N for three consecutive years, and it will be reinstated retroactively to the date of revocation.

IRS will not impose a penalty under Code Sec. 6652(c) for failure to file the annual returns for the three consecutive tax years, if the organization files properly completed and executed paper Forms 990-EZ for all such tax years. For any year for which the organization was eligible to file a Form 990-N, the organization is not required to file a prior year Form 990-N or Form 990-EZ for such year.

Retroactive reinstatement process within 15 months. An organization that is not eligible to use the above streamlined process may use the following process for retroactive reinstatement of its tax-exempt status: It must submit a reinstatement application with the applicable fees no later than 15 months after the later of the date of the Revocation Letter or the date on which IRS posted the organization’s name on the Revocation List. It also must file properly completed and executed paper Annual Returns for: (a) all tax years in the consecutive three-year period for which the organization was required to, but failed to, file Annual Returns and (b) for any other tax years after such period and before the postmark date for which required returns were due and not filed. It must also include:

 

…a statement confirming that it has filed those paper returns;
…and a Reasonable Cause Statement described in Rev Proc 2014-11, Sec. 8.01 (showing reasonable cause for its failure to file a required annual return or notice for at least one of the three consecutive years).

 

If its application is approved, IRS will not impose the penalty under Code Sec. 6652(c) for the failure to file annual returns for the three consecutive tax years.

Retroactive reinstatement process beyond 15 months. If it has been more than 15 months from the later of the date of the Revocation Letter or the date on which IRS posted the organization’s name on the Revocation List, an organization may apply for retroactive reinstatement of its tax-exempt status by doing precisely the same steps as those in the within-15-months process described above, except that the required Reasonable Cause Statement is the one described in Rev Proc 2014-11, Sec. 8.02 (showing reasonable cause for its failure to file a required annual return or notice for all three years that it failed to file)

If its application is approved, IRS will not impose the penalty under Code Sec. 6652(c) for the failure to file annual returns for the three consecutive tax years.

Effective date. Rev Proc 2014-11 is effective for reinstatement applications submitted after Jan. 2, 2014. Transition relief is provided for pending applications and for previously reinstated organizations. (Rev Proc 2014-11, Sec. 7)