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Tips for Organizations with Recently Lost Tax-Exempt Status

September 28th

The Internal Revenue Service announced this summer that approximately 270,000 organizations have lost their tax-exempt status because they failed to file the legally required annual reports for the past three years. While the IRS believes that the vast majority of these organizations are now defunct, they have also released guidelines to aid those that are still in existence in reclaiming their tax-exempt status.

Most tax-exempt organizations are required, under the Pension Protection Act (PPA) of 2006, to file an annual information tax return or notice with the IRS. The IRS is empowered to revoke the tax-exempt status of any organization that has failed to file this return for three consecutive years.

Alerts for Revoked Organizations

Since the law was originally passed in 2006, the IRS has been making concerted efforts to inform the public of the changes. As a part of this effort, the IRS has issued guidance on how organizations may apply for the reinstatement of their lost tax-exempt status. The guidance includes how to obtain retroactive reinstatement.

In addition, the IRS has announced transition measures aimed at smaller, tax-exempt organizations. These measures will be available specifically to those organizations with annual gross receipts of $50,000 or less for 2010. These relief measures allow eligible organization to regain their tax-exempt status retroactively from the date of revocation. They may also pay a reduced application fee of only $100 rather than the standard $400 or $850 fee.

Donors should note, however, that any organization on the revocation list is no longer eligible to receive tax deductible donations. It is important to adjust tax returns accordingly, or else potentially face IRS penalties for the unpaid taxes.


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