Lost Your Tax-Exemption? What Next —
The IRS has begun to revoke the tax-exempt status for those nonprofit organizations that have not filed some form of a 990 (information report) for three years. Guidestar estimates that 350,000 to 400,000 nonprofits are in danger of losing their exemptions. A large number of these organizations are smaller nonprofits that previously were not required to file an annual return because their gross revenues were $25,000 or less. If your organization has not filed any of the 990 forms for three years it is likely you will soon receive a revocation notice.
How will I know if my organization has lost its tax-exempt status?
You will receive a notice from the IRS in the form of a letter, Notice CP120A. A copy of this notice is posted on the IRS website and a list of organizations that have had their nonprofit status revoked.
What is the effect of my organization's losing its tax-exempt status?
If your organization’s tax-exempt status is automatically revoked, it is no longer tax exempt under federal law, and may be required to file one of the following federal income tax returns and pay any applicable income taxes:
- Form 1120, U.S. Corporation Income Tax Return, due by the 15th day of the 3rd month after the end of your organization’s tax year, or
- Form 1041, U.S. Income Tax Return for Estates and Trusts, due by the 15th day of the 4th month after the end of your organization’s tax year.
May my organization re-instate its tax-exempt status?
Yes. To re-instate your tax-exempt status you will need to re-apply for it, completing either the IRS Form 1023 or 1024 and paying the filing fee which will range from $400 to $850. This process can take several months.
If the tax-exempt status of a 501(c)(3)has been revoked, may donors continue to receive a tax deduction?
No. Donations received after official notification of revocation of your tax-exempt status as a 501(c)(3) are no longer tax-deductible. Further, you will not be listed in Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986.
Only upon official notification of re-instatement of your 501(c)(3) tax-exempt status may your donors receive tax-deductibility.
If you have additional questions, please contact us through the Ask the Nonprofit Specialists section of the ASU Lodestar Center's website, or call us at 602-496-0550.
^  Historically, tax-exempt organizations filed either a 990 or a 990-EZ unless their revenues were $25,000 or less. These smaller nonprofits were not required to file a year-end information report. In 2008 the IRS instituted the 990-N that requires those with $25,000 or less income to annually file; this is a postcard form. Exception: Religious organizations classified by the IRS as such are not required to file any type of 990 information report.
^  http://www.irs.gov/individuals/article/0,,id=234662,00.html click on "English" in the upper right hand panel.
^  http://www.irs.gov/charities/article/0,,id=240099,00.html
^  http://www.irs.gov/charities/article/0,,id=221600,00.html Frequently Asked Questions
^  http://www.irs.gov/charities/article/0,,id=221591,00.html
^  Please see the ASU Lodestar Center's FAQ page in the Ask the Nonprofit Specialist for specific instructions on how to start a nonprofit. http://nonprofit.asu.edu
^  http://www.irs.gov/charities/article/0,,id=221600,00.html for its Frequently Asked Questions