IRS issues new procedures for reinstating tax-exempt status of organizations that failed to file returns for three consecutive years

On January 2, 2014, the Internal Revenue Service (IRS) issued Revenue Procedure 2014-11, providing streamlined procedures for reinstatement of tax-exempt status for organizations whose tax-exempt status was revoked due to failing to file Form 990 for three consecutive years. An organization that was eligible to file either Form 990-EZ, Short Form Return of Organization Exempt from Income Tax, or Form 990-N, E-Postcard, for each of the three consecutive years that it failed to file may be retroactively reinstated if it files a new application for exemption within 15 months of the revocation date.

Currently, an organization (other than a private foundation or supporting organization) may file a Form 990-N if it normally has gross receipts of $50,000 or less. An organization may file a Form 990-EZ if the organization has gross receipts of less than $200,000 and total assets of less than $500,000 at the end of the taxable year. If the application is approved, the organization will be deemed to have reasonable cause for its failure to file, and its exempt status will be reinstated retroactively to the revocation date. Further, the IRS will not impose the penalties for failure to file the returns.

An organization filing within 15 months that is not eligible to apply under the above streamlined procedure, may apply nevertheless by following the same procedures outlined above and also: (1) including a Reasonable Cause statement, establishing that it exercised ordinary business care and prudence in attempting to comply with its filing requirements for one of the three years; and, (2) filing the three missing returns with the IRS service center and including a statement with the application that it has filed the three returns.

Organizations that apply for reinstatement more than 15 months after revocation must follow the same procedures required for organizations that are not eligible for the streamlined procedure, but must include a Reasonable Cause statement for each of the three years it failed to file, rather than one year.