Taxation & Estate Planning

MORE ON EXEMPT ORGANIZATION STATUS REVOCATIONS

By Charles Rubin

Earlier this week, I wrote about how exempt organizations that do not file their Form 990?s for 3 consecutive years face automatic revocation of their status. The day after that was written, the IRS released a FAQ discusing the issue.

The FAQ did not bring any real relief to taxpayers, but did answer some questions. Some of the highlights included:

-confirmation that revocation is automatic ? that is, the IRS has no discretion not to revoke.

-confirmation that if revoked, the entity will have to begin filing regular tax returns, pay applicable federal taxes, and transfers to it will lose whatever applicable contribution deductions would have been allowed.

-the revocation is effective as of the filing due date of the third year (and thus not at the later date when the IRS takes official action).

-an extension of time to file the applicable Form 990 will stave off the revocation if the 3rd required return is filed within the allowed extension.

-a full application process will be needed to reinstate status, including payment of applicable user fees. If reinstated, the effective date will be the date of the application, so there may be a gap ?taxable? period between revocation and reinstatement. The organization can request an effective date back to the date of revocation, but the request will be granted only if the IRS finds the organization had ?reasonable cause? for not filing the return for the three consecutive ears.

While not mentioned in the FAQ, note that the revocation of exemption will also probably affect state and local exemptions that are based on federal exempt status.

Automatic Revocation of Tax-Exempt Status for Failure to File Annual Return or Notice ? Frequently Asked Questions and Answers, April 27, 2010

Full post as published by Rubin on Tax on May 02, 2010 (boomark / email).