On June 9, 2011, the IRS issued notices to approximately 275,000 not-for-profit organizations throughout the United States revoking their exemption from federal income taxation, meaning that they are no longer eligible to receive tax-deductible contributions. A fully searchable list of these organizations is available at http://www.irs.gov/charities/. These revocations, which are currently effective and retroactive to May 15, 2010, are the result of the organizations’ failure to file their 2007, 2008, and 2009 forms 990 or forms 990-N. While it seems that a significant portion of these previously-exempt organizations may not have even known of this filing requirement, their failure to file the required returns means that for federal tax purposes, they are now considered taxable entities.

Prior to 2007, tax-exempt organizations with less than $25,000 in annual receipts were not required to file an annual information return with the IRS. In 2006, however, a new law was enacted requiring these smaller organizations to file a form 990-N postcard each year detailing their annual receipts and expenses. At the same time, a law was enacted stating that any organization failing to file its required annual return with the IRS for three (3) consecutive years would have its tax-exempt status revoked. Unfortunately, many organizations were never made aware of this new filing requirement, and now are no longer exempt from income taxation.

If an organization’s tax exempt status has been revoked, it can no longer receive tax-deductible contributions, and any contributions that it does receive will be subject to federal income taxation. This could result in such organization incurring a substantial federal income tax liability. Therefore, for each year in the future, the organization will be required to file a federal income tax return. This revocation will also have a pronounced effect on donors to formerly-exempt organizations, as any donations they make to such organizations after June 9, 2011 will not be deductible from their personal taxable income. There is no process by this revocation can be appealed.

However, relief is available. For an organization to have its tax exempt status reinstated, it must re-file its application for exemption, in its entirety, and undergo the complete determination process with the IRS from the beginning. Applications for reinstatement are worked on a first-come, first-served basis, so it is crucial that an organization which has had its tax-exempt status revoked file its application as soon as possible. If an organization’s application is accepted, its tax-exempt status will be reinstated as of the date of the filing of its application for reinstatement. The cost of filing this form is generally either $300 or $750, depending on each organization’s average annual receipts. However, if an organization meets certain technical requirements, its tax-exempt status will be reinstated retroactively to the date of revocation, as if this revocation never took place, and the organization is eligible for a reduced user fee of $100.

If you operate a not-for-profit organization, please visit the IRS’s website to ensure that your organization’s tax-exempt status is intact. If it is not, contact our office immediately to discuss the process for reinstatement at 847-705-7555.