Streamlined Process for Seeking Retroactive Reinstatement of Tax-Exempt Status Announced
It goes without saying that the Internal Revenue Service Exempt Organization Division had a challenging 2013. The management team suffered significant losses; however, in recent months, there have been signs that the Exempt Organization Division has taken stock of their reality – crushing workloads, inadequate resources, antiquated processes, technological challenges and an ever-growing exempt sector – and have focused on what all of us do every day – efficiency.
The release of Revenue Procedure 2014-11 is a signal that relief for all of us who work within the exempt community has arrived, at least for those exempt organizations whose tax-exempt status was revoked for failure to file required Annual Returns or notices.
Readers may recall that the Pension Protection Act of 2006 added Section 6033(j) to the Internal Revenue Code automatically revoking the tax-exempt status of organization exempt from taxation under 501(a) or a non-exempt charitable trust treated as a private foundation for failure to file Form 990, 990-EZ or an annual notice, Form 990-N, for three consecutive years. Generally speaking, gross receipts and total assets dictate the appropriate form/notice. In spite of extensive outreach, hundreds of thousands of organizations lost their tax-exempt status. Reinstatement of such status requires reapplying to the Service by filing Form 1023 or 1024. In addition to processing exemption applications for newly organized exempt organizations, the Service has had to deal with implementing the new filing requirements and addressing reinstatement requests.
Revenue Procedure 2014-11 provides procedures for reinstating the tax-exempt status of organizations whose status was automatically revoked. There is a “streamlined” process for first-time offenders. It is critical that organizations that find themselves in this bucket take advantage of this “Get Out of Jail Free” card.
Repeat offenders and those organizations seeking retroactive reinstatement more than fifteen months after revocation have separate filing requirements and must establish reasonable cause with respect to their failure to file a required return or notice. The reasonable cause statement must be filed under penalties of perjury. Organizations that have previously received reinstatement of their tax-exempt status may be eligible to cure gaps in their exempt status by reapplying to the IRS by May 2, 2014.
Revenue Procedure 2014-11 is a strong signal that process improvement efforts are underway at the Internal Revenue Service and that provision of clear guidance to the exempt community is achievable. The most important message to exempt organizations is that all entities, large or small, have annual filing or notice requirements. The tax-exempt specialists at Schneider Downs are available to assess annual compliance requirements and those seeking reinstatement of tax-exempt status. Please contact Susan M. Kirsch at firstname.lastname@example.org for additional information.
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