Our Tax Exemption Was Revoked!

Many nonprofit organizations may mistakenly assume that a tax-exempt status granted by the Internal Revenue Service lasts forever. In fact, that is false.

An exempt organization is typically required to make annual filings; if it fails to do so, the IRS can assess penalties or revoke the tax exemption. Among other consequences, this means that the organization in question would be liable for corporate income tax, could face additional tax penalties, and would be unable to provide donors with a tax deduction for their gifts.

If your organization has received notice that its exemption is being revoked, take heart. In many cases, organizations who have had their exemption revoked can regain their tax-exempt status by re-filing IRS Form 1023.

As part of this process, your organization can apply to have its exemption retroactively reinstated. In most cases, the organization must include a reasonable cause statement (as outlined in IRS procedures) to establish that it exercised ordinary business care in attempting to comply with the annual reporting requirements.

While your application is pending, the National Council of Nonprofits advises that you should be transparent with donors, staff, and board members about the loss of tax exemption, keep good records, and be patient with the lengthy IRS process.

A version of this post was originally published by Mallory Law Office, LLC.