How to Get Retroactive Reinstatement of Tax-Exempt Status
If your tax-exempt status was revoked, learn the steps to have it restored retroactively by the IRS, as if the compliance lapse never occurred.
When a nonprofit organization fails to file its required Form 990-series return for three consecutive years, the Internal Revenue Service (IRS) automatically revokes its tax-exempt status. This action disrupts operations, as it eliminates the ability for donors to make tax-deductible contributions and can affect grant eligibility. The IRS provides a formal process to regain tax-exempt status through reinstatement. It is possible to have this status reinstated retroactively, which treats the organization as though its status was never revoked. This process ensures contributions made during the revocation period remain tax-deductible and that the organization avoids income tax liability for that time.
Determining Eligibility for Retroactive Reinstatement
An organization’s path to retroactive reinstatement depends on timing and its specific circumstances. The IRS outlines distinct procedures based on when the application is filed relative to the date of revocation.
For organizations that act promptly, a streamlined process is available. If an application for reinstatement is submitted within 15 months of the date on the revocation letter or the date the organization’s name appeared on the IRS revocation list, it can generally qualify for retroactive reinstatement.
A specific exception exists for smaller organizations. Organizations that were eligible to file Form 990-EZ or Form 990-N for the three years that led to the revocation may still use a streamlined process even if they apply after the 15-month deadline. A condition for this path is that the organization must not have had its tax-exempt status automatically revoked previously. This provision offers a second chance for smaller entities that may have fewer resources to manage administrative filings.
Organizations that do not qualify for the streamlined options and apply more than 15 months after revocation must demonstrate “reasonable cause” for their failure to file. Reasonable cause is established by providing a detailed explanation showing the organization exercised ordinary business care and prudence but was still unable to file its returns for all three of the years in question. The IRS considers facts and circumstances such as unforeseen events, administrative errors, or reliance on incorrect advice when evaluating a reasonable cause claim.
Required Documentation and Information
An organization must gather several key documents to apply for reinstatement. The required items depend on the organization’s eligibility path and include the following:
- A new application for tax-exempt status. The organization must file the same form it would if applying for the first time, which is typically Form 1023 or Form 1024. Smaller organizations may be eligible to use the shorter Form 1023-EZ. These forms require detailed information about the organization’s structure, mission, activities, and financial data.
- A reasonable cause statement, if applying after the 15-month deadline under the reasonable cause standard. This must be a separate, signed document that provides a detailed narrative of the facts leading to the failure to file for each of the three years. The statement should explain how the failure was discovered and what procedural changes have been implemented to ensure future compliance.
- All overdue Form 990-series returns for the three consecutive years that caused the revocation, as well as for any subsequent years. These returns must be properly completed, signed, and have the phrase “Retroactive Reinstatement” written on the top before being mailed to a specific IRS address.
- The required user fee associated with the application form. The user fee for Form 1023 is $600, while the fee for Form 1023-EZ is $275. Payment is made electronically through the Pay.gov portal at the time of submission.
The Application Process for Reinstatement
The application and all supporting materials must be submitted electronically through the Pay.gov website. This system is used for filing the exemption application (Form 1023, 1023-EZ, or 1024) and paying the associated user fee. During the online submission, the organization will upload its completed application form and attach any required supporting documents, such as the reasonable cause statement.
A statement confirming that the delinquent tax returns have been filed must also be included with the application. The paper copies of the overdue Form 990-series returns are mailed separately to the designated IRS service center. After the application is submitted, the IRS will send an acknowledgment of receipt. The processing time for reinstatement applications can vary depending on the complexity of the case and the IRS’s workload.
Post-Reinstatement Responsibilities
The IRS will issue a new determination letter confirming the retroactive reinstatement of tax-exempt status. The organization should then verify that its status has been updated in the IRS’s public database, the Tax Exempt Organization Search tool. This database is used by donors and grant-making foundations to confirm an organization’s eligibility to receive tax-deductible contributions.
It is also important to notify relevant state agencies of the federal reinstatement. This includes the state tax authority and any office that handles charity registrations. Ensuring that state-level records are updated helps maintain compliance with state fundraising regulations and tax exemptions.
Finally, the organization must implement internal controls to prevent future filing lapses. Establishing clear procedures for tracking filing deadlines, assigning responsibility for compliance, and ensuring board oversight can help avoid another automatic revocation. An organization that is revoked a second time is not eligible for the streamlined reinstatement process.