If you’re a nonprofit organization that has lost its tax exempt status, the road to reinstate tax exempt status can seem complicated. Fortunately, it’s not the end of the line. Whether you missed a filing deadline, failed to meet specific requirements, or encountered another issue, it’s possible to reinstate tax exempt status through the reinstatement process. In this blog, we’ll guide you through the steps you need to take to reinstate your revoked tax exempt status and get back on track.
Why Was My Tax Exempt Status Revoked?
Before diving into the reinstatement process, it’s important to understand why your status was revoked. Some common reasons for revocation include:
- Failure to File Required Forms: Nonprofit organizations are required to file an annual Form 990, Form 990-EZ, or Form 990-N (e-postcard), depending on their size. If you miss three consecutive years of filing, the IRS may revoke your status.
- Failure to Meet Ongoing Requirements: Even after receiving tax-exempt status, nonprofits must continue to meet specific requirements to maintain that status. If your organization changes its mission, fails to operate exclusively for exempt purposes, or engages in prohibited activities, it could lead to revocation.
- Administrative Errors: Sometimes, the IRS might make an administrative error that leads to the revocation of your nonprofit’s tax-exempt status.
Steps to Reinstate Tax Exempt Status
If you’ve discovered that your nonprofit’s tax exempt status has been revoked, don’t panic. Follow these steps to navigate the reinstatement process.
- Determine the Type of Revocation
The IRS revokes tax-exempt status in two primary ways: automatic revocation and voluntary revocation. If your status was automatically revoked for failure to file, you can apply for reinstatement through a streamlined process. However, if the IRS revoked your status for reasons such as noncompliance with tax-exempt requirements or violations, you may need to go through a more detailed process.
- Check the Status of Your Nonprofit’s Tax Exempt Status
Before taking any steps, confirm your nonprofit’s current tax-exempt status by visiting the IRS’s Tax Exempt Organization Search Tool. You can verify whether your nonprofit is still in good standing or if its status has been revoked.
- Gather Your Required Documents
To apply for reinstatement, you’ll need to submit a number of forms and documents.These may include:
- Form 1023 or Form 1024: The primary form you’ll need to submit will depend on the type of organization you run. Form 1023 is for most charitable organizations, while Form 1024 is for other types of exempt organizations.
- Form 990: You’ll likely need to show proof of your nonprofit’s compliance with IRS filing requirements by submitting copies of previous Form 990 filings or explanations for any missed filings.
- Statement of Compliance: If the IRS revoked your status for not meeting operational standards, you’ll need to submit a statement that outlines the changes your nonprofit has made to comply with the tax-exempt requirements.
- Choose the Right Reinstatement Process
There are two main ways to apply for reinstatement of tax-exempt status: streamlined and standard. The IRS offers a streamlined application process for nonprofits that were automatically revoked due to non-filing. If your nonprofit qualifies (i.e., it was revoked for missing three consecutive years of filings), the process is relatively quick and straightforward.
However, if your organization was revoked for other reasons, you will need to submit a detailed application, which can take longer. The IRS may require more documentation to demonstrate that your nonprofit now complies with all regulations.
- Complete Form 1023 or 1024 (Streamlined or Standard)
- Streamlined Process: To qualify for reinstatement under the streamlined process, your organization must meet the following conditions:
- You have not engaged in significant activities that violate tax-exempt status.
- You apply for reinstatement within 15 months of the date your status was revoked.
If you meet these conditions, you can submit a simplified Form 1023-EZ (for smaller nonprofits) or the standard Form 1023, depending on your organization’s size.
- Standard Process: If you don’t qualify for the streamlined process, or if your nonprofit was revoked for more serious reasons, you must submit the full version of Form 1023 or 1024 and provide more detailed information regarding your nonprofit’s activities, finances, and governance.
- Pay the Required Fees
Be prepared to pay the necessary filing fees for your reinstatement application. Fees can vary depending on the size of your nonprofit and whether you’re applying for reinstatement under the streamlined or standard process.
- Wait for IRS Review
Once you’ve submitted your application, the IRS will review your materials. The timeline for this review can vary, but it generally takes several months. In some cases, the IRS may request additional documentation or clarification.
- Receive Your Reinstatement Notice
If the IRS approves your application, you will receive a notice confirming that your nonprofit’s tax-exempt status has been reinstated. This is a huge victory, as your nonprofit will be able to resume its activities without paying federal income tax, and you may be eligible to receive tax-deductible contributions again.
If your application is denied, you will be notified of the reason for denial. In some cases, you may be able to appeal the decision or reapply after addressing any issues raised by the IRS.
Key Takeaways
Reinstating your revoked tax exempt status isn’t always a quick process, but with the right steps and documentation, your nonprofit can regain its status and continue its work. Be proactive in keeping up with IRS filing requirements and ensure that your organization remains compliant with all regulations to avoid future revocations. If you’re unsure about the reinstatement process or need guidance, consider working with an accountant or attorney specializing in nonprofit tax law to help you navigate the complexities.
Regaining your tax exempt status means getting back to the vital work your nonprofit does, whether it’s serving your community, advancing a cause, or making a positive impact. Take the necessary steps today, and you’ll be well on your way to restoring your nonprofit’s standing and reputation.
How Crowded Helps Prevent Loss of Tax Exempt Status
Crowded helps nonprofits safeguard their tax-exempt status by streamlining financial operations and ensuring compliance with IRS regulations. With features like real-time financial tracking, automated reporting, and centralized oversight, Crowded makes it easy for nonprofits to maintain accurate, transparent records and avoid the risk of noncompliance. Additionally, Crowded offers the ability to backfile 990 forms for the past three years, making it easier for nonprofits to catch up on their filing requirements and stay in full compliance.
Crowded also supports standardized processes across all chapters, simplifying the management of donations and expenditures to meet the IRS’s requirements. By automating financial workflows and providing clear visibility into every transaction, Crowded ensures that nonprofits can focus on their mission while confidently maintaining their tax-exempt status and adhering to nonprofit compliance standards.
