Archive for the ‘Non-Profits’ category

When Bad Things Happen to Good Charities: Dealing with Automatic Revocation of Exemption

August 3, 2011

 By Rose Drupiewski

For many years, small charities with gross income falling under certain levels were not required to file annual returns with the IRS. However, beginning in 2007, all charities are now required to provide certain information to the IRS on an annual basis. Small charities that were previously exempt from filing annual information returns with the IRS must now file Form 990-N, also called the e-postcard, which is simply a short electronic notice to the IRS providing the organization’s name, address, and other identifying information. Congress made another change in the law providing the muscle to enforce these new reporting requirements: beginning in 2007, the IRS is required to revoke the exempt status of any charity that has failed to satisfy its information reporting requirements for three consecutive years.

The first wave of revocations recently hit the charitable shore, as this summer the IRS sent hundreds of thousands of notices to charities informing them that their exemptions were automatically revoked for failure to file returns. Most of the charities receiving revocation notices have been small charities that were unaware of the new reporting requirements, leaving many of them wondering how to deal with this unexpected burden.

Fortunately for small charities, the IRS has provided guidance as to how charities can reinstate their federal tax exemptions. For small charities, the IRS allows a simpler reinstatement process and a reduced application fee of $100. It is possible to obtain a retroactive reinstatement of exemption, thus ensuring seamless exemption coverage. Small charities that wish to apply for reinstatement of their tax exemptions can obtain information about the application process from the IRS website, with specific procedural requirements set forth in IRS Notice 2011-43.