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New Relief for Tax Exempt Organizations Subject to Automatic Revocation of Exempt Status

The Internal Revenue Service (IRS) has recently released guidance (Revenue Procedure 2014- 11) which provides new procedures for organizations which lost their exempt status as a result of failure to file a return for a consecutive three year period (Filing Period). The guidance provides consolidated information for all organizations seeking reinstatement of exempt status, retroactive and non-retroactive, previously contained in multiple sources.

Qualifying Small Organizations
The IRS has brought back as well as modified relief previously available to certain small organizations. Similar to previous relief procedures, the IRS has waived the reasonable cause requirement otherwise applicable to organizations requesting reinstatement of exempt status under the guidance. Reasonable cause is established for qualifying small organizations upon approval of their exemption application filed with the IRS as part of the reinstatement process. However, different from relief previously available, the new streamlined relief does not have an expiration date (simplified relief for certain small organizations was only available through December 31, 2012).

Organizations Filing Within 15 Months of Revocation
The IRS has also incorporated and modified relief previously available to other organizations in the new guidance. Organizations that file for retroactive reinstatement of their exempt status within 15 months of revocation no longer need to establish reasonable cause for each year of non-filing during the filing period. Organizations (other than certain small organizations) qualifying for relief are now only required to establish reasonable cause for one of any three of the tax years during the filing period.

Organizations Filing After 15 Months from Revocation
The guidance also extends relief to those organizations who do not file for reinstatement within 15 months of revocation. Retroactive reinstatement was not previously available to these organizations. However, different from those organizations which file within 15 months of revocation, these organizations are required to establish reasonable cause for each year a return was not filed during the filing period.

Other Thoughts
Additional requirements that must be met to have exempt status retroactively reinstated as well as information on how to avoid late filing penalties for any unfiled returns are outlined in the new guidance.

Certain transitional rules which may be applicable to organizations that previously requested reinstatement of exempt status or may have been ineligible for retroactive reinstatement under the old procedures are also outlined (i.e. organizations that did not qualify for retroactive reinstatement).