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IRS Identifies Organizations That Have Revoked Exemption, Announces Reinstatement, Charitable Deductibility Procedures

By Bruce R. Hopkins July 26, 2011

(Originally published in the July issue of Bruce R. Hopkins Nonprofit Counsel, available electronically to subscribers on publication.)

The IRS, on June 8, announced that approximately 275,000 organizations have lost their tax-exempt status, by operation of law, because they did not file information returns and/or submit e-postcards for three consecutive years (IRC § 6033(j)) (IR-2011-63, Ann. 2011-35). The agency believes that the “vast majority” of these entities are defunct.

The IRS, on that day, also issued guidance as to how organizations can apply for reinstatement, including retroactively, of their exempt status (Notice 2011-44). An organization seeking reinstatement of its exempt status must apply using the same forms that are filed by other applicants for recognition of tax exemption (e.g., Form 1023 in the case of charitable organizations). This is the case irrespective of whether the organization was originally required to apply for recognition of exemption (e.g., subordinate organizations originally covered by a group exemption). The appropriate user fee must be paid (currently, Rev. Proc. 2011-8).

To facilitate processing of these applications, organizations are requested to write “automatically revoked” on the top of the application and its envelope. A request for retroactive reinstatement must include several elements of information, including a statement of the facts supporting the claim of reasonable cause for the failure to file and/or submit. This notice summarizes the reasonable cause standard.

June 8 also brought transitional relief for small organizations (those that normally have annual gross receipts of no more than $50,000 in their most recently completed tax year) that failed to electronically submit an annual notice (the e-postcard) for years beginning in 2007, 2008, and 2009 (Notice 2011-43). The IRS will treat these organizations as having established reasonable cause for the non-submission if certain stated criteria are satisfied, including submission of a properly completed and executed application for reinstatement of exempt status no later than December 31, 2012. A reduced user fee of $100 must be paid (Rev. Proc. 2011-36).

In general, grants and contributions made to an organization that has lost its exempt status under these rules will be allowed if made on or before the date of publication of the list of revoked organizations (Rev. Proc. 2011-33). This revenue procedure generally states revised criteria for reliance on the listing of an organization in IRS Pub. 78 or on the IRS Business Master File extract (by superseding Rev. Procs. 82-39 and 2009-32). [27.5]


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