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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How to File the Updated 8868 Extension Form

IRS Form 8868 is a tax extension form for exempt organizations and private foundations needing to increase their filing deadlines for 990 tax returns. The form separates into two sections - Part I and Part II - with each one offering a 3-month extension of time.

For the 2016 filing year, the IRS has eliminated the separate sections and now offers the 8868 form as a single filing that grants an automatic 6-month extension of time. Completing the new 2016 Form 8868 is similar as it was before; however, here are some IRS guidelines to follow when submitting an extension:


Basic Organization Details
Begin the form by adding essential information about your exempt organization or private foundation which includes the following:

• Organization Name
• Organization Address
• Employer Identification Number (EIN) or Social Security Number (SSN)

The IRS added the social security option for individuals filing the form. If you are filing on behalf of a nonprofit or private foundation, you should enter the federal employer identification number.


Return Codes/Books/Group Return
Enter the return code that represents that tax form you want to extend its filing time:

Form 990/990-EZ - 01 Form 990-T (corporation) - 07

Form 990-BL - 02 Form 1041-A - 08

Form 4720 (individual) - 03 Form 4720 (other than individual) - 09

Form 990-PF - 04 Form 5227 - 10

Form 990-T (sec. 401(a) or 408(a) trust) - 05 Form 6069 - 11

Form 990-T (trust other than above) - 06 Form 8870 - 12

You need to enter the full name of the person or officer that manages the organization’s books or financial statements along with the organization’s phone number, fax number, or both. You also have a choice to indicate whether the organization does not have an office or place of business within the United States.

If the extension is for a group return, the IRS requires you to enter the organization’s 4-digit Group Return Number (GEN). You can select if the extension is for the whole group or part of the group. If it’s for part of the group, you should attach a list of names and EINs of those organizations.

Tax Year Period
On Line 1, enter the extended due date which is six months after the initial filing deadline. For example, if your due date is June 15, then your extended date is December 15. Then, you can choose if the extension is for a calendar year or fiscal year. If it’s for a calendar year, then enter the numerical year, i.e. 2016. For fiscal tax years, enter the begin date followed by the end date, i.e. March 1, 2016, to February 28, 2017.

Important: The updated Form 8868 only applies to tax year 2016 and upcoming tax years in the future. If you happen to be filing an extension for 2015, you’ll need to revert to the 2-part form.

For organizations filing for a tax year period less than a full 12 months, you can indicate the reason why on Line 2.


Tax Liabilities
Line 3a, b, and c are for exempt organizations and private foundations with tax amounts owed to the IRS. Enter any tentative taxes minus nonrefundable credits on Line 3a. List refundable credits, estimated tax payments made, and any prior year overpayments as a credit on Line 3b. Subtract your total sum of 3b from 3a to get your “Balance due.” on Line 3c - that’s the amount you have to pay either through EFTPS or with a check or money order.

E-file Tax Extensions
E-filing Form 8868 to the IRS is the best way for both individuals and tax professionals. By using IRS-authorized, e-file services like ExpressTaxExempt or ExpressExtension, you can typically complete and transmit a 2016 8868 form in less than 10 minutes. The IRS processes e-filed forms much quicker than paper filing, so you’ll receive confirmation and a copy of your extension soon after transmitting. And with e-filing, you usually have until Midnight local time of the deadline date to submit your form.

For any questions about your organization’s information, tax year period, tax liabilities, or Form 8868 return codes, you can contact the IRS Tax-Exempt Hotline at 877.829.5500. If you’re interested in e-filing your extension form, you can reach ExpressTaxExempt at 704.839.2321 or via email with support@ExpressTaxExempt.com.

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