Lost Your Tax-Exempt Status? Here's How to Get it Back

Once you’ve gotten that coveted tax-exempt status for your nonprofit organization, it can be quite the job maintaining it. For some, it can even become a full-time job to ensure their organization remains tax-exempt, which is why it can be so devastating to learn that the IRS has revoked that status.

Losing Tax-Exempt Status
The most common reason organizations lose their tax-exempt status is failing to file a Form 990 return for three consecutive years. Of course, there are more insidious ways organizations can forfeit their status, but not filing for three years in a row can be indicative of these. And so organizations will automatically lose tax-exempt status, effective beginning the original due date of the third missed annual return.

When you lose tax-exempt status, the first thing the IRS will do is send a letter explaining the situation and how your organization is no longer exempt from federal income tax. Your organization will be added to the Automatic Revocation of Exemption List, which the IRS updates monthly.

During this time, your organization is no longer considered tax-exempt so normal federal income tax laws apply. Also during this time period, you’re no longer eligible to receive tax-deductible contributions however your donors can deduct contributions made before your organization is listed on the Automatic Revocation list. Keep in mind that there may also be separate repercussions with your state after your tax-exempt status is revoked.

If your organization is still operating while its tax-exempt status is revoked, you may also be required to file a federal income tax return and pay any applicable taxes with one of these forms:

• -Form 1120, US Corporation Income Tax Return, due the 15th day of the 3rd month following your tax year end date
• -Form 1041, US Income Tax Return for Estates and Trusts, due the 15th day of the 4th month following your tax year end date

And Getting it Back!
The most important thing to getting your tax-exempt status back is to act fast and thoroughly when going through the IRS’s reinstatement steps. It will really help here if you’ve been keeping detailed records of your organization’s revenue and expenses. So, first things first: to reinstate your tax-exempt status, you’re going to need to file another Form 1023 if applying under section 501(c)(3). If you’re applying under a different Code section, file Form 1024. Regardless of whether your organization was originally required to file one of these forms for tax-exempt status, you’ll need to file one again now.

You’ll also be required to pay the appropriate user fee the IRS will charge for your status reinstatement. The specifics of the amounts you owe will be explained in the letter the IRS sends to alert you of your status being revoked.

If needed, you can also petition for a retroactive reinstatement as part of your application. This is an important step to take if you believe your organization’s tax-exempt status being revoked was an error or unwarranted. If you don’t need retroactive reinstatement, pending your application’s approval, your organization’s new tax-exempt effective date will most likely be the date you submit Form 1023 or 1024 to the IRS.

Once you’ve been reinstated, it’s important to make every effort not to lose that status again! Be sure to file your 990 Form each year, keep meticulous records, and, of course, only use the benefits of your tax-exempt status for tax-exempt operations. And don’t forget that ExpressTaxExempt can help - like the Jackson 5, just call our name and we’ll be there!

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5 Stages of Exempt Organizations

From conception to execution, it’s a beautiful sight to behold all of your efforts coming together to establish a nonprofit or a charity organization. And once your organization meets the requirements of Internal Revenue Code section 501(a), it can become exempt from federal income taxation.

Becoming tax-exempt doesn’t happen overnight and maintaining your exemption status takes even more dedication and a thorough understanding of IRS compliance - enough that it may detract from your organizational duties. Don’t let that deter you from succeeding with your organization. You can find numerous online sources that can detail running an exempt organization and keeping up with your exempt filings.

Over the course of operating your exempt organization, you’ll get familiar with the intersecting points where you are responsible for tasks mandated by the IRS, or even the state. These points, or stages, are also referred to as the life cycle of an exempt organization.

Stage 1 - Starting Out
There are a number of things you need to have accomplished before you can even dream about being tax-exempt. Your organization has to be created under state law, an Employer Identification Number (EIN) must be issued, and your appropriate federal tax classification must also be determined.

See how to forge your beginning with our blog:
Becoming a Nonprofit or Tax-Exempt Organization

Stage 2 - Applying for Exemption
To obtain recognition of exemption from federal income tax, you are required to file Form 1023; The IRS Form 1023 is categorized as the Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code. Not as simple as you may think - before you even begin, you must have these items:

• Employer Identification Number (EIN)
• Organizing Document (Article of Incorporation, Trust Agreement, or Articles of Association, Constitution, Bylaws or Other Similar Organizing Documents
• Section 501(c)(3) Purpose and Dissolution Clause Verification (Included in Organizing Document)
• Form 2848, Authorized Representative Verification (if applicable)
• Form 8821, Tax Information Authorization

More information about the Section 501(c)(3) application can be found here:
A Form 1023 Thanksgiving

Stage 3 - Required Filings
Getting your exemption status is one thing, maintaining your exemption status is another. You are required to file your tax-exempt returns with the IRS each year.

• Form 990-N (e-Postcard) - Exempt organizations with less than $50,000 in gross receipts
• Form 990-EZ - Exempt organizations with less than $200,000 in gross receipts, and total assets less than $500,000
• Form 990 (Long) - Exempt organizations with gross receipts greater than or equal to $200,000, or total assets greater than or equal to $500,000

You can learn about the 990 series tax forms from another one of our insightful blogs:
ExpressTaxExempt - #1 for Tax-Exempt 990 Forms

Stage 4 - Ongoing Compliance
There are basic guidelines of governance that should be instilled your organization - even if it’s operated differently from the next. You have disclosure requirements, employment taxes, and ways to avoid risking, or worse - losing, your exempt status. And it’s been proven how governance guidelines can link to how tax compliant your organization is.

Check on how compliant your governance practice could be with our blog:
Compliant or Not Compliant

Stage 5 - Significant Events
These could be your organization’s “be all, end all” moments, and can include audits, private letter rulings, and termination procedures. Nothing is meant to last too long - but if you’re on top of your financial responsibilities and IRS compliance, these events should be few and far in-between.

Know the key areas of a standard audit review with our two blogs:
Legal Audits pt.1
Legal Audits pt.2

We understand how demanding federal paperwork can be, and how it can take away precious time from strengthening the impact of your organization - which is why we offer quick and simple e-filing solutions specifically for exempt organizations. ExpressTaxExempt offers secure e-filing; your information is transmitted directly to the IRS and no one else. And your information is securely stored within our cloud-based servers that you can safely access from anywhere, anytime.

Contact our live, supportive team of e-filing professionals if you have questions or need further assistance with your e-filing experience; we’re happy to help! Call us at (704) 839-2321, Monday through Friday from 9 a.m. to 6 p.m. EST, or email us at any given time of day, even on weekends, at support@expresstaxexempt.com.

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