The worst thing that can happen to a nonprofit organization is to lose its tax-exempt status. There can be serious repercussions if exempt status is not reinstated. To make matters worse, the IRS often makes mistakes with revocations and drags its feet when asked to correct those mistakes.
If your organization, or a client's organization has had its tax-exempt status revoked, seek help from an experience professional. Upon receipt of the revocation notice, the first reaction is often to pick up the phone and call the IRS. It's OK to do that, just don't rely completely on the advice they give.
The process for achieving reinstatement of tax-exempt status after being revoked for failing to file a Form 990 for three consecutive years can be confusing. It's easy to end up doing way more work than is necessary during the process of seeking reinstatement.
There are many questions to be answered:
- Do we really need retroactive reinstatement?
- The IRS never notified us. Are we still revoked?
- Can the IRS simply "un-revoke" our organization?
- How many prior year returns need to be filed (if any)?
- Can we use the new Form 1023-EZ?
- Must we establish reasonable cause for filing late?
- We filed a valid extension for the third year and we filed the return before the extension expired. The IRS says the extension was no good. Is that right?
- How many years of financial information do we have to include on the Form 1023?
- Will the IRS charge penalties for the late-filed returns after we file them?
Even if you plan to prepare your own Form 1023 or Form 1024 to seek reinstatement, I recommend that you schedule a phone consultation with me to be sure you are following the correct procedure so you don't do more work than is necessary or introduce unnecessary delays in the process.