Achieving tax-exempt status for your nonprofit organization is a vital element of meeting your goals. Without tax-exempt status, your cash flow takes a hit because of the payments your nonprofit must make to the IRS. Maybe you forgot to file Form 990. 990-EZ, or 990-N with the IRS before the deadline. Perhaps the IRS made a mistake in processing one of the tax-exempt forms required to gain tax relief for your nonprofit. Another possibility is your nonprofit failed to file the right forms for three consecutive years, which means an automatic revocation of tax-exempt status.
Thousands of nonprofit organizations lose their tax-exempt status each year because of the failure to file the right forms in a timely manner. Let’s see how your nonprofit can regain its tax-exempt status.
Reinstatement of Tax-Exempt Status after Automatic Revocation
If the IRS automatically revoked your tax-exempt status and you want to regain your tax-exempt status, file an application for tax exemption and pay the associated user fee. If the department at the IRS responsible for reviewing tax-exempt status applications approves your request, you should receive a new letter of tax-exempt determination that demonstrates your tax-exempt status until the next filing period for tax-exempt applications.
The IRS includes your nonprofit organization in the next released update of the Exempt Organizations Select Check database, as well as verifies your organization has resumed its eligibility to receive tax-deductible contributions. For most reinstatement applications, the effective date of reinstatement is the date when your nonprofit submitted its tax-exempt application to the IRS. This means your nonprofit should be able to regain your tax-exempt status retroactively to the date when your organization sent in your application.
Submit the Correct Paperwork
If your nonprofit organization lost its tax-exempt status due to an automatic revocation, you can regain your tax-exempt status by filing one of two documents. Your nonprofit organization can submit Form 1023, which is the Application for Recognition of Exemption Under Section 501(c)(3), or Form 1024, which is the Application for Recognition of Exemption Under Section 501(a)
If you fail to achieve retroactive reinstatement for tax-exempt status, you must pay taxes on all contributions between the date when you sent in the reinstatement application and the date when the IRS approved your application to regain its tax-exempt status. This also means contributors cannot deduct contributions from their taxes during the same period. Failing to apply for retroactive reinstatement of your organization’s tax-exempt status can cost your nonprofit a substantial amount of money.
Support Your Application
The more pertinent information that you submit with your application for tax-exempt reinstatement, the more likely the IRS approves your application. A detailed statement that provides a reasonable reason for failing to file the proper returns for three consecutive years is a good start for persuading the IRS to approve your reinstatement application. Your nonprofit should also include measures on how to avoid future tax-filing failures, as well as evidence that supports your nonprofit’s measures to avoid future mishaps. Filing the proper tax returns for the missing years also helps build a strong case for the reinstatement of your nonprofit organization’s tax-exempt status.