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Relief for orgs that didn’t file returns while waiting for exempt org application approval

June 18, 2014

IRS’s Tax Exempt and Government Entities Division (TEGE) has issued a memo in which it instructs its employees on providing relief to organizations that have failed to file required annual information returns for three consecutive years while their applications for exempt organization status were pending.

Background.Subject to limited exceptions, Code Sec. 6033(a) requires exempt organizations to file an annual information return (Form 990-N, 990-EZ, 990 or 990-PF).Under Code Sec. 6033(j), if a tax-exempt organization that is required to file an annual information return under Code Sec. 6033(a) fails to file such return for three consecutive years, such organization’s status as an organization exempt from tax under Code Sec. 501(a) will be considered revoked on and after the due date for the filing of the third return.

Facts.Due to excess inventory, TEGE has applications from organizations that may have failed to file annual information returns for three consecutive years while their applications have been pending.In such circumstances, the exempt status of these organizations may be revoked before they have received a ruling from TEGE.

IRS to provide retroactive reinstatement.The memo provides that applications in these circumstances are treated as requests for reinstatement.

The memo provides that if: i) a TEGE specialist is working on an application of an organization that filed its application for exemption with IRS before the due date of filing its Form 990-N, 990-EZ, 990, or 990-PF for the third tax year after its formation date, (ii) the specialist has determined that the organization should receive a favorable determination with regard to the exempt status of the organization, and iii) the specialist has determined that the organizationhasn’t fileda Form 990-N, 990-EZ, 990 or 990-PF at least once in the last three years, then the specialist is to:

  • grant exemption effective as of the date the specialist would have otherwise granted exemption if there was no automatic revocation (e.g., effective on the formation date or postmark date);
  • and add language to the exemption approval letter that: a) as a result of the applicant’s not filing its annual return for three years, its tax-exempt status was automatically revoked on the due date of its third year return; b) IRS is treating the applicant’s application for exempt status as an application for reinstatement and is recognizing the exemption as reinstated on the same day it was automatically revoked; and c) as a result, the organization is recognized as tax-exempt continuously from the effective date of exemption as reflected at the top of the approval letter.

IRS’s memo also provides that where (i) a TEGE specialist is working on an application of an organization that filed its application for exemption with IRS before the due date of filing its Form 990-N, 990-EZ, 990, or 990-PF for the third tax year after its formation date, (ii) the specialist has determined that the organization should receive a favorable determination with regard to the exempt status of the organization, and (iii) the specialist has determined that the organizationhas fileda Form 990-N, 990-EZ, 990 or 990-PF at least once in the last three years, then the specialist is to grant exemption effective as of the appropriate date under normal TEGE procedures.

Effective date: The memo’s instructions are effective beginning Apr. 16, 2014.

References:For information reporting and revocation of exempt status for failure to file information returns for three consecutive years, see FTC 2d/FIN ¶ S-2802 ; United States Tax Reporter ¶ 60,334 ; TaxDesk ¶ 688,001 ; TG ¶ 60701 .

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