Our Tax Exemption Was Revoked - Now What?

Did you know that a nonprofit’s tax exemption can be automatically revoked by the Internal Revenue Service? Excluding churches, most tax-exempt organizations are required to make annual filings with the IRS - and those that do not automatically lose their tax-exempt status after three years.

Among other consequences, this means that the organization would be liable for corporate income tax, could face additional tax penalties, and would be unable to provide donors with a tax deduction for their gifts.

If your organization has received similarly discouraging news, take heart. Organizations who have had their exemption revoked can regain their tax-exempt status by re-filing IRS Form 1023.

As part of this process, your organization can apply to have its exemption retroactively reinstated. In most cases, the organization must include a reasonable cause statement (as outlined in IRS procedures) to establish that it exercised ordinary business care in attempting to comply with the annual reporting requirements.

While your application is pending, the Council of Nonprofits advises that you should be transparent with donors, staff, and board members about the loss of tax exemption, keep good records and be patient with the lengthy IRS process.

Finally, don’t forget to file your annual returns to avoid being automatically revoked again. Organizations subject to a second revocation are required to undergo a longer reinstatement application process.

A version of this post was originally published by Mallory Law Office, LLC.