On June 10, 2011, the Internal Revenue Service ("IRS")
released the complete list of approximately 275,000 nonprofit
organizations that have lost their tax-exempt status for failure to
file Form 990, Form 990-N, Form 990-EZ, or Form 990-PF for three
consecutive years. The list of revoked entities is available on the
IRS website. The list includes the
organization's name, Employer Identification Number, last known
address, and effective date of revocation of exempt status; it will
be updated monthly. In its announcement, the IRS indicated that it
believes most of these organizations are likely defunct, however,
it has issued guidance regarding the steps such organizations must
take to apply for reinstatement of their tax-exempt status.
This is the first group of revocations resulting from the passage
and implementation of the Federal Pension Protection Act (the
"Act"), passed by Congress in 2006. The Act mandated
annual filing requirements for virtually all tax-exempt
organizations, including tax-exempt organizations with gross
receipts of $25,000 or less that were not previously required to
file an annual return with the IRS. The Act also provided for the
automatic revocation of any tax-exempt organization that does not
file the required returns or notices for three consecutive years,
and requires the IRS to publish and maintain a list of all such
organizations that are so revoked.
In conjunction with its recent publication of the names of the
first wave of organizations with revoked tax-exempt status, the IRS
also issued guidance regarding the impact that the revocations have
on charitable contributions to revoked organizations, and the
manner in which organizations may seek reinstatement of tax-exempt
status, including retroactive reinstatement. The IRS also announced
transition relief for certain small tax-exempt organizations.
In connection with the announcement and publication of revocations
of exempt status, the IRS issued the following guidance:
Revenue Procedure 2011-33 (Contributions to
Revoked Organizations) states that where an organization listed in
Publication 78 ceases to qualify as an organization to which
contributions are deductible under Section 170 of the Internal
Revenue Code (the "Code"), as a result of loss of exempt
status due to failure to file annual reports for three consecutive
years, grants and contributions made to the organization by persons
unaware of the change in the status of the organization generally
will be considered allowable if made on or before the date of
publication of the list of revoked organizations. The IRS may
disallow a deduction for any contribution made after revocation of
exempt status but prior to the published notice of the revocation
where the grantor had knowledge of the revocation prior to
publication, was aware that revocation was imminent, or was, in
part, responsible for the revocation. Publication on the list of
organizations whose tax-exempt status has been revoked is intended
to serve as a notice to donors and others that they may no longer
rely on a prior listing in Publication 78.
Revenue Procedure 2011-36 (Reduced Fee for
Reinstatement) reduces to $100 the user fee charged for the
reinstatement of exempt status of small exempt organizations that
normally have annual gross receipts of not more than $50,000 whose
exemption was automatically revoked pursuant to Code Section
6033(j).
Notice 2011-43 (Transitional Relief)
provides transitional relief for small organizations that had their
exempt status revoked because they failed to file a required annual
electronic notice for the last three consecutive years. An
organization with annual gross receipts of less than $50,000 that
qualifies for transitional relief pursuant to the criteria set
forth in this Notice, and applies for reinstatement of exempt
status by December 31, 2012, will be treated as having established
reasonable cause for failure to file annual returns and exempt
status will be reinstated retroactive to the date it was
revoked.
Notice 2011-44 (Process for Reinstatement) sets
forth the steps that an organization must take to apply for
reinstatement of exempt status and request retroactive
reinstatement after an organization's tax-exempt status was
automatically revoked under Code Section 6033(j). An organization
must use the same form filed by other applications for recognition
of tax exemption to seek reinstatement, and must pay the applicable
user fee. If an organization is seeking retroactive reinstatement,
it must submit information demonstrating reasonable cause for
failure to file an annual report, among other supporting
materials.
The Treasury Department and the IRS intend to issue regulations
under Section 6033(j) of the Internal Revenue Code, implementing
rules regarding the application for reinstatement of tax-exempt
status and the request for retroactive reinstatement. Comments are
currently being solicited on the materials and issues addressed in
Notice 2011-44. Comments are due August 19, 2011.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.