IRS Filing Requirements to Maintain the Tax-Exempt Status of Your Nonprofit Organization

Nonprofit organizations may be exempt from federal income tax but are still required to file an annual informational return with the IRS. There is an exception for churches and church-related organizations. According to the IRS, if a nonprofit organization does not file the legally required annual reports for three consecutive years, it automatically loses its tax-exempt status.

If you lose your tax-exempt status, you would have to file Form 1120, U.S. Corporation Income Tax Return, or Form 1041, U.S. Income Tax Return for Estates and Trusts, and you would have to pay federal income tax. Donations made to a tax-exempt organization before its tax-exempt status is automatically revoked are still tax-deductible for the donor. But after automatic revocation, the organization is no longer eligible to receive tax-deductible contributions.

The annual return you have to file depends on the type and size of your organization. Small organizations with annual gross receipts of $50,000 or less can file Form 990-N, which is an e-postcard that you can file online. This form requires only some basic information. The form is due each year by the 15^th of the fifth month after the close of the tax year. The IRS will send a reminder if you have not filed, and there is no penalty for late filing.

Larger tax-exempt organizations must generally file Form 990. This form includes more extensive information on your organization and its financial activities for the year. Most tax-exempt organizations with gross receipts of less than $200,000 and total assets of less than $500,000 can file the shorter Form 990-EZ. Private foundations must file Form 990-PF. All the 990 series forms are due by the 15^th of the fifth month after the close of the tax year.

In June, 2011, the IRS announced guidance on how organizations that have automatically lost their tax exempt status can apply for reinstatement, including retroactively. The IRS publishes an Automatic Revocation of Exemption List on its website.

To request reinstatement of tax-exempt status, you must file Form 1023 if you are a nonprofit 501(c)(3) corporation. Other organizations must file Form 1024, Application for Recognition of Exemption Under Section 501(a). You must submit an application even if you were not originally required to apply for recognition of your tax-exempt status.

When your application for reinstatement of tax-exempt status is approved, the effective date will normally be the date your reinstatement application is approved. The IRS may grant reinstatement of tax-exempt status retroactive to the date the status was automatically revoked if the organization can show evidence of reasonable cause for failing to meet the annual filing requirements.

The request for reinstatement must be filed in the form of a statement attached to the applicable form you file to apply for reinstatement of tax-exempt status. This statement must include all the facts that support your claim of reasonable cause for not filing the required annual returns and the safeguards your organization has implemented to ensure you will file the required returns in the future.

Properly completed annual returns must be attached for the years you didn't file. And the request for reinstatement must include a statement signed by an officer, director, trustee, or other official authorized to sign for the organization.

There is transitional relief for small organizations (with gross receipts of $50,000 or less) that have had their tax-exempt status revoked for not filing the Form 990-N e-postcards for three consecutive years. These organizations must still file an application for reinstatement, but can pay a reduced fee of $100 instead of the normal fee of $400 or $850. And they can have their tax-exempt status reinstated retroactively, just by filing for reinstatement.

Sources:

Annual Electronic Filing Requirement for Small Exempt Organizations '" Form 990-N (e-Postcard), IRS

Annual Form 990 Filing Requirements for Tax-Exempt Organizations, IRS

Automatic Revocation of Exemption List, IRS

Form 990, Return of Organization Exempt from Income Tax

Form 990-EZ, Short Form Return of Organization Exempt from Income Tax

Form 990-PF, Return of Private Foundation

Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code

Form 1024, Application for Recognition of Exemption Under Section 501(a)

IRS Identifies Organizations that Have Lost Tax-Exempt Status; Announces Special Steps to Help Revoked Organizations, IRS