New Procedures for Reinstating Tax Exempt Status

The IRS recently issued new guidelines for reinstating an organization’s tax exempt status after it has been revoked because of failure to file returns for three consecutive years.  The reason this is necessary is because the Pension Protection Act of 2006 added a filing requirement for tax-exempt organizations that previously did not have to file returns.  As a result of this requirement, over 250,000 tax-exempt organizations have lost their status.  The IRS guidance lists three methods to get the tax-exempt status reinstated.

Under the first option, a tax-exempt organization that has had its status revoked within the last 15 months and was eligible to file Forms 990-EZ or 990-N must file an Application for reinstatement and pay an application fee.  If these requirements are met, the tax-exempt status will be reinstated retroactively to the date of revocation.  In addition, any penalties for failure to file a return will be waived.

The second option applies to organizations that do not file Forms 990-EZ or 990-N.  Under this option the entity must do everything required in option one but, in addition, file the unfiled prior three years’ returns and include a statement of reasonable cause as to why at least one of the three previous returns were not filed.  If the request of reinstatement is approved then this type of reinstatement can be retroactive as well.

The third option applies to cases where it has been longer than 15 months since the IRS issued the revocation.  Under this option the entity must do everything in the second option, but the statement of reasonable cause must be given for each of the three returns that were not filed.  Again, if approved, reinstatement is retroactive.

Of course, if none of those options are available, the entity can always re-apply for tax-exempt status. But, it will not be retroactively applied.  It will only cover future time periods.

If your organization recently lost its tax exempt status and you want to get it reinstated, schedule your free consultation by calling (480) 888-7111 [or submit a web request here].