IRS Fixes Retroactive Automatic Revocation Catch-22

You probably know that it can take a very long time for the IRS to review your organization’s exemption application. What you may not know is that a new nonprofit is required to file its Form 990, 990EZ, or 990N-ePostcard even while its application is pending. This means that it is possible that by the time the IRS gets around to reviewing your application, your organization could already have been automatically revoked for failure to file three informational returns. We have seen this catch-22 befall new nonprofits many times.

The IRS is now stepping up to the plate to help those organizations that don’t understand this filing requirement. In a just-released policy, the IRS provides special instructions to its agents for applications that are (1) filed before the due date for filing the organization’s 990 for the third tax year after its formation date, (2) when the organization has not filed 990s during that period, and (3) should be recognized as exempt. In these cases, the IRS will ensure that the organization  is recognized as tax-exempt continuously from the organization’s formation date (if the application is submitted within 27 months of the organization being formed) or the post-mark date of the application.

This is great news for organizations with pending applications that aren’t aware of the filing requirement. But if your organization’s application is pending, be sure to file the required returns. Contact us if you’re not sure what you need to file.