How to Regain Tax-Exempt Status

An organization seeking to have its tax-exempt status reinstated from the date of automatic revocation must submit a request for retroactive reinstatement with either IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) or IRS Form 1024, Application for Recognition of Exemption under Section 501(a), according to Adam B. Landy in a post on http://sctaxlawyers.com, a blog written by attorneys from the tax practice of The McNair Law Firm.  Further, if the tax-exempt status of a subordinate organization included in a group exemption letter is automatically revoked, the subordinate organization must apply for reinstatement on its own behalf.    

All organizations seeking reinstatement must pay the appropriate user fee of either $400 if the organization’s annual average gross receipts were less than $10,000 during the preceding four years or $850 if the organization’s annual average gross receipts were greater than $10,000.  

Along with the application for reinstatement, Landy says, the organization must include: 

• A written statement (a) setting forth all of the facts that support its claims for reasonable cause for failing to file a required return or notice in each of the three consecutive years and over the consecutive three-year period and (b) describing the safeguards the organization has put in place to ensure it will not fail to file returns or notices in the future; 
• Any evidence to substantiate all material aspects of the written statement; 
• Properly completed and executed paper annual information returns (i.e., Form 990, Form 990-EZ, or Form 990-PF) for all tax years during and after the consecutive three-year period that the organization was required, but failed, to file an annual information return; 
• Properly completed and executed Form 990-EZ for all tax years during and after the consecutive three-year period that the organization was required to file a Form 990-N e-Postcard but failed to file either a Form 990-N e-Postcard or an annual information return; and 
• An original declaration dated and signed under penalties of perjury by an officer, director, trustee or other official who is authorized to sign for the organization. 

Moreover, an organization seeking retroactive reinstatement must demonstrate that it had reasonable cause for failing to file a return or notice not only for each of the three years but also over the entire three-year period.  An organization may establish reasonable cause by providing facts and circumstances showing it exercised ordinary business care and prudence in determining and attempting to comply with its reporting requirements for each of the three years and over the entire three-year period, but was nonetheless unable to file the required returns or notices for three consecutive years.  

The IRS will consider a request for retroactive reinstatement from an organization other than a small organization only if the organization submits a request for reinstatement with a properly completed and executed application for reinstatement within 15 months of the later of the date of the IRS revocation letter or the date the IRS posted the organization’s name on its revocation list available on the IRS website.