Q&A #128 – Does the tax-exemption reinstatement process require organizations to file the Forms 990 they missed?
Question: I am an officer of a small nonprofit organization whose 501(c)(3) status was revoked because we failed to file the Form 990 for 3 years in a row. This happened due to miscommunication when our prior Treasurer stepped down. We are now exploring the process for reinstatement. Does the application for reinstatement require us to submit a Form 990 for the years that we missed?
Answer: The process for reinstating the tax-exempt status of an automatically revoked organization is described in IRS Revenue Procedure 2014-11. In short, to obtain the maximum protection of the reinstatement process, organizations must file any missed Forms 990 or 990-EZ except to the extent they: (1) were eligible to file Form 990-N during the relevant years; and (2) file for reinstatement by the 15-month deadline.
As summarized on the IRS website, Revenue Procedure 2014-11 generally provides four different reinstatement processes:
Streamlined Retroactive Reinstatement: This is the most favorable reinstatement process, and is generally available to small organizations that were eligible to file Form 990-N or Form 990-EZ for each of the 3 missed years, have not been automatically revoked before, and which file the applicable reinstatement application (Form 1023, Form 1023-EZ, Form 1024, or Form 1024-A) no later than 15 months after the date of the IRS letter notifying the organization that it is revoked, or if later, the date the organization is placed on the automatic revocation list on the IRS website.
Retroactive Reinstatement (within 15 months): this process is generally available to organizations that file for reinstatement within the 15-month window but otherwise do not qualify for the Streamlined Retroactive Reinstatement Process (usually because they are not eligible to file Form 990-EZ due to having annual revenue of $200,000 or more and/or total assets of $500,000 or more).
Retroactive Reinstatement (after 15 months): This process is generally available to organizations that fail to file for reinstatement within the 15-month window.
Post-Mark Date Reinstatement: This is the least favorable reinstatement process because tax-exempt status only restored from the date the organization files for reinstatement rather than retroactively back to the date of revocation. Thus, this process is usually used only when the organization is not able to satisfy the requirements of any of the three retroactive reinstatement processes.
All three of the retroactive reinstatement processes described above include forgiveness of the late filing penalties for the Forms 990 that the organization failed to timely file. This is important because these penalties can be significant, as discussed in Q&A #23.
However, these processes require the organization to mail the applicable version of the Form 990 for each missed year to the address specified in Revenue Procedure 2014-11 except to the extent the organization: (1) was eligible to file Form 990-N during the relevant years; and (2) files for reinstatement by the 15-month deadline.
In other words, an organization will generally need to file a Form 990-EZ or Form 990 for any missed years unless the organization was eligible to file Form 990-N for the year at issue and otherwise qualifies for the Streamlined Retroactive Reinstatement Process.
Planning Tip – Nonprofit organizations should maintain a finance calendar that includes due dates for the Form 990, charitable solicitation registrations, and other required filings, as well as a schedule for gathering the necessary information and preparing these filings. Make sure all Board members, officers, and staff have easy access to the finance calendar to ensure that filing deadlines are not missed. This is especially important when there is turnover in key staff, Board and/or officer positions such as the Treasurer.
The post-mark date reinstatement process presents slightly different issues. This process does not specifically require that the organization file Forms 990 for years that were missed. However, it is highly advisable to do so anyway (and explore abatement of the penalties) unless the organization was eligible to file Form 990-N during the relevant years. Otherwise, the possibility of the IRS assessing late filing penalties will always loom over the organization.
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