If your nonprofit organization doesn’t file tax returns for three years in a row, the IRS will automatically revoke your tax-exempt status and put your organization on the revocation list. You cannot appeal automatic revocation, but you can apply for reinstatement.
Losing your tax-exempt status means any profits you earn are subject to federal income tax. You may also have to pay state income taxes and sales tax if you’re currently exempt. Finally, donations are no longer tax-deductible for your donors.
Unfortunately, many nonprofits find out their tax-exempt status has been revoked long after the fact – for example, a donor may try to take a deduction for a contribution, realize it’s not allowed, and then alert your organization. That can substantially damage your reputation.
Read on to learn about the hidden risks of automatic tax-exemption revocation for nonprofits, or contact us at Wiggam Law to schedule a consultation today.
Key takeaways
- Automatic revocation of tax-exempt status applies if a nonprofit fails to file returns for three consecutive years.
- The IRS will send a letter to the organization and post its record on the revocation list.
- Losing your tax-exempt status means you must pay federal income tax, plus state income and sales tax.
- You can apply for reinstatement – and potentially even get it retroactively if you meet the requirements.
- An experienced tax attorney can help you protect your organization.
Effects of automatic revocation
You cannot receive tax-deductible contributions once your nonprofit status is revoked. You also face tax on your earnings and may need to file:
- Form 1120 (US Corporation Income Tax Return), or
- Form 1041 (US Income Tax Return for Estates and Trusts)
You may also need to file a state income tax return. If you’re currently exempt from state sales tax, you will likely lose that exemption as well. Additionally, nonprofits that lose their exempt status may be unable to obtain grants or government funding.
Your organization is liable for any taxes assessed before you were put on the automatic revocation list, but if reinstated retroactively, you may not face any late filing penalties for the three years of unfiled information returns.
How to find out if your nonprofit has been revoked
If you answer yes to both of these questions, your tax-exempt status has likely been revoked:
- Is your nonprofit required to file an annual return, besides the 990-N or 990-PF?
- Have you failed to file tax returns for the last three years?
The IRS sends a letter after revoking your tax-exempt status, but if your address has recently changed, you may miss the notice.
- The most direct way to check your organization’s status is to use the IRS’s Tax Exempt Organization Search https://apps.irs.gov/app/eos/ tool on its website. This official database includes the list of organizations whose tax-exempt status has been automatically revoked for non-filing. The IRS updates this list monthly, so there might be a short delay between the effective date of revocation and your organization’s appearance on the list.
The names of automatically revoked nonprofits do not appear in the IRB. Organization names appear only on the IRS’s downloadable list of automatically revoked nonprofits, and the numbers associated with these organizations appear in the IRB.
However, if your tax-exempt status is revoked for another reason, such as failing an audit, your name will appear in the IRB.
Organizations at risk of automatic revocation
All tax-exempt organizations required to file annual tax returns will face automatic revocation if they fail to file three consecutive tax returns, including 501(c)(3), (4), (5), (6), and (7) organizations.
Exempt organizations not required to file are not subject to automatic revocation, including churches, church groups, schools run by churches, and several other integrated auxiliaries and associations of churches. The IRS has a complete list of exempt organizations that aren’t subject to the automatic revocation rules.
Effective date of automatic nonprofit revocation
Revocations are effective on the due date of the third consecutive unfiled tax return. That’s the 15th day of the 5th month after the end of the tax year – May 15th for nonprofits using a calendar year, or the next business day if the due date falls on a weekend or holiday.
How to apply for reinstatement
Unfortunately, you cannot appeal an IRS automatic tax-exempt revocation of your 501(c)(3) or any other nonprofit organization, but you can request reinstatement by filing a new application for exemption.
You can request retroactive reinstatement if you want the reinstatement to be retroactively scheduled on the day you lost nonprofit status, but you must do so within 15 months of the revocation notice. Depending on the situation, you may need to show reasonable cause for at least one of the years you didn’t file. If you apply for retroactive reinstatement after the 15-month deadline, you can only qualify if you have reasonable cause for all three years.
What if the automatic revocation was done in error
Although you cannot appeal an automatic revocation, the IRS will reverse the revocation if it was done in error. You may be able to prove the error if:
- You filed, but the IRS didn’t receive the returns.
- You didn’t have a filing requirement, or
- The IRS miscalculated the starting date of the three-year period, so you haven’t actually missed three years of returns.
To address incorrect automatic revocation, contact IRS customer service for tax-exempt and government entities – here are links to IRS phone numbers for different types of entities. Or use the details below to contact the agency by mail or fax.
What if my organization filed in the last three years?
If you filed at least one return in the last three years, call the IRS or send an inquiry by mail or fax to:
Internal Revenue Service
1973 North Rulon White Blvd.
M/S 6552
Ogden, UT 84404
Fax: 855-247-6123
What if my organization weren’t required to file?
If you received a notice from the IRS saying your nonprofit didn’t need to file an annual return, but you’re on the automatic revocation list, reach out to the IRS by mail or fax at:
Internal Revenue Service – TEGE
P.O. Box 2508
Cincinnati, OH 45201
Fax: 855-204-6184
As long as your filing status hasn’t changed, the IRS will remove you from the automatic revocation list.
What if my organization hasn’t had a filing requirement for three years
Occasionally, the IRS miscalculates the three-year period by using the EIN application date instead of the nonprofit formation date. If that happens, you may face automatic revocation after missing just two returns, not three.
If your nonprofit was formed after you received your EIN and you believe you’ve been erroneously placed on the list, contact the IRS by mail or fax at:
Internal Revenue Service
1973 North Rulon White Blvd.
M/S 6273
Ogden, UT 84404
Fax: 855-214-7520
Reduce long-term damage with prompt action
Without tax-exempt status, you will face federal income tax on your organization’s net income – that’s all revenue and donations, minus qualifying business expenses. You’ll also face state taxes. Even just a few years of unexpected tax liabilities can push an organization into financial ruin. Additionally, your reputation is at stake – if donors can’t write off contributions, they’ll stop sending money and gifts, and they won’t necessarily come back once you get reinstated.
To protect your organization and its mission, you need to be proactive. Reach out to the IRS about reinstatement, and whenever possible, get retroactive reinstatement backdated to the date you lost your tax-exempt status.
Also, make a plan to stay compliant in the future. Ensure you understand your filing obligations, track your numbers carefully through the year, and file your returns on time every year.
The right tax attorney can be critical for guiding your organization through this process.
FAQs about the IRS tax-exempt auto revocation list
Can I check revocation status with the IRS’s tax-exempt organization search?
No, the tax-exempt organization search is not updated in real time. Your organization may appear on the tax-exempt list for a short time after automatic revocation takes effect.
What is the federal tax rate for nonprofits that lose tax-exempt status?
Typically, nonprofits that lose their tax-exempt status are subject to the federal corporate income tax rate of 21%, plus you may have to pay state income tax as well. The rate varies for trusts.
Are contributions tax-deductible if my nonprofit status is revoked?
No, your organization cannot receive tax-deductible contributions if your tax-exempt status has been revoked. However, there is a limited exception if the revocation was not automatic – if your organization is initiating a legal proceeding under Section 7428, certain contributions made by individuals may be tax-deductible.
What if a donor contributes before they’re aware of the revocation?
The donation is tax-deductible if the donor was unaware of the change in status, but only until the IRS publishes an announcement that contributions to that organization aren’t deductible. Donors can generally rely on an organization’s tax-exempt status until the IRS publishes the organization’s name on the Automatic Revocation List (which is available through the online Tax Exempt Organization Search tool). Once the organization is on that list, contributions are no longer deductible. Does automatic revocation affect my nonprofit on the state level?
Every state has different laws – check with your state’s department of revenue. Many states require organizations to notify the department of revenue if they lose their federal tax-exempt status through automatic revocation, while others regularly check the IRS list to verify organizations’ tax-exempt status. Your organization may need to pay sales tax and other state and local taxes once your status has been revoked.
Does automatic revocation affect tax-exempt interest on bonds issued by my organization?
Yes, interest on bonds is no longer tax-exempt once your organization has been revoked. You may need to redeem or defease bonds within 90 days of the deadline of the third unfiled return, or get your nonprofit status retroactively reinstated.
What if the IRS revoked tax-exempt status for my private foundation?
You are still considered to be a private foundation, even if the IRS revokes your tax-exempt status. You still need to file Form 990-PF every year, but you’re also subject to excise taxes and may need to file a federal income tax return (Form 1041 for trusts and Form 1120 for all other entities) and pay taxes due.
Get Help Protecting Your Nonprofit
Nonprofits are critical to society – but in addition to focusing on your mission, you also have to deal with a lot of administrative paperwork, including tax returns. If you’ve fallen behind, we can help. Whether you’re worried about automatic revocation, seeking reinstatement, or dealing with other compliance issues, our tax attorneys can lead you in the right direction.
Don’t wait – contact us at Wiggam Law to schedule a consultation today.
