Our Tax Exemption Was Revoked - Now What?

We recently received an inquiry from a small nonprofit organization that learned that the Internal Revenue Service had revoked its tax exemption for failure to file required notices. Among other consequences, this meant that the organization 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 similarly discouraging news, take heart. 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 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.