“Revocation is the act of recall or annulment. It is the reversal of an act,
the recalling of a grant or privilege, or the making void of some
deed previously existing.”1
The Pension Protection Act of 2006 requires the IRS to revoke the exempt status of any organization not filing an annual return for three consecutive years. With this Act, the IRS started a massive campaign to notify charities of the requirement to begin filing some type of annual information return, Form 990N, 990EZ or 990. Remember, for years, the small guys were exempt from any filing requirement. So, notices were mailed to “known” existing nonprofits. Interested parties sent press releases and public email communications. I remember seeing all the publicity and thinking this would do the trick, everyone must know, right? Wrong! Thousands of once exempt charities had their status revoked, and continue to have status revoked.
Three of these have come across my desk in the past month or so, nonprofits needing assistance with having their exempt status reinstated. It continues to amaze me how many organizations exist and continue to fundraise successfully that have had their status revoked.
What does “revocation” mean?
Revocation means that your nonprofit is no longer exempt from federal income tax and will have to pay corporate income tax on annual revenue. Also:
- The organization may be subject to back taxes and penalties for failure to pay corporate income taxes if the effective date of revocation was in a prior tax year.
- Any state tax exemptions that your nonprofit received – such as exemptions for income tax, property tax, and sales/use tax — that are dependent on federal tax-exempt status, may also be revoked now.
- Your organization will not be listed in IRS Publication 78, Cumulative List of Organizations described in Section 170.
- Donors will not be eligible to receive a tax deduction for their gifts to the organization after the revocation date.
- Most private foundations are unlikely to give a grant directly to nonprofits that are not tax-exempt because their guidelines normally require grantees to be recognized as tax-exempt public charities.
Got your attention? Wondering if your organization is one of these?
The IRS publishes a list of organizations that have had their federal tax-exempt status automatically revoked for failing to file an annual information return or notice with the IRS for three consecutive years. This Automatic Revocation of Exemption List may be viewed and searched on Exempt Organizations Select Check (EO Select Check). The list gives the name, employer identification number (EIN), organization type, last known address the organization provided to the IRS, effective date of revocation and the date the organization was added to the list. For organizations that applied for and received reinstatement, the list gives the date of reinstatement.The IRS updates the list monthly.
What to do if you’re on the “revoked list”
You must re-apply for tax-exempt status by filing the appropriate form (1023, 1023-EZ or 1024) with the IRS and paying the required fees. In most cases, you will also need to prepare and file the returns that were not filed.
More than likely, if you’ve been revoked by the IRS, there are other compliance issues to be considered. Like my most recent case, who was revoked by the IRS back in 2010. Subsequent research also identified that their state corporate status was revoked and their filings with the charity registration folks were delinquent. What a mess! Good news, though, it’s most likely curable to some degree, but you should not tackle this alone. The process is cumbersome and can take many months. Hiring an experienced advisor is the best solution.
Finding these documents will help speed the process along:
- Certificate of incorporation
- Original 1023 or 1024
- Most recently filed Form 990/990EZ/990N
- All IRS and state correspondence received
- Up to date accounting records
Do not panic if you cannot find some of these documents. Gather what you can and call the professionals at Spire Group, PC. We’ve successfully tackled these before and are ready to assist.
1 Source: Wikipedia