Louis E. Michelson, A Professional Corporation

Providing Legal and Tax Advisory Services to Nonprofit Organizations

Automatic Revocation of Exemption: In Error?

July 29th, 2012 · No Comments · Federal Income Taxes, Loss of Tax-Exempt Staus

Background: The Pension Protection Act of 2006 made two important changes affecting tax-exempt organizations, effective the beginning of 2007.  First, it requires all tax-exempt organizations, other than churches and church-related organizations, must file an annual return with the IRS. That includes small tax exempt organizations with gross receipts of $25,000 or less and had not previously had a filing requirement (the threshold is currently $50,000 or less). They now are required to submit a Form 990-N, also known as an e-Postcard. Second, it mandates that any tax-exempt organization that fails to file for three consecutive years automatically loses it federal tax-exempt status.

Organizations on the Auto-Revocation List.  The automatic revocation of exemption is effective as of the due date of the third required annual filing or notice.   The IRS publishes a list of organizations that were previously recognized as exempt which are no longer eligible exempt.  This list serves notice to donors and others that the organization is no longer eligible to receive tax-deductible contributions under Internal Revenue Code Section 170.  See the following link to access this list.

Was Exemption Erroneously Revoked?  The IRS published Frequently Asked Questions if you believe your organization was erroneously listed as revoked.  These questions address whether the IRS can “undo” the automatic revocation, whether there is an appeal of the automatic revocation, what can be done if the organization has documentation that it has met the filing requirement and how to reinstate exemption.  These questions include:

  1. Can the IRS “undo” my organization’s automatic revocation?
  2. May my organization appeal its automatic revocation?
  3. If an organization on the Auto-Revocation List has documentation that it met its filing requirement for one or more years during the three year period, what should it do?
  4. If an organization on the Auto-Revocation List has a letter from the IRS stating that it does not have an annual filing requirement, what should it do?
  5. Why does a federal credit union appear on the Auto-Revocation List, even though it is not required to file an annual return?
  6. If an organization on the Auto-Revocation List has been legally formed for less than three years, what should it do?

See the following link for the FAQs.

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