Is Your Tax Status at Risk?

By Raul Rivera

The IRS is about to automatically revoke the tax-exempt status of thousands of ministries across America. Every year in the month of August, this happens. It is because of section 6033, which requires the IRS to revoke the tax-exempt status of any 501(c)(3) organization (except churches) that fails to file Form 990 for three consecutive years.

Filing requirements for exempt organizations

According to section 6033 of the Internal Revenue Code (IRC), nearly all tax-exempt organizations are required to file an annual information return via Form 990. Section 6033(3)(A)(i) does, however, exempt churches from this requirement. Furthermore, section 6033(j)(1) tells us that tax-exempt organizations that are required to file Form 990 and fail to do so for three consecutive years will receive an automatic revocation of their tax-exempt status. An automatic revocation means that an organization is no longer considered to be tax-exempt due to not filing the required 990s for three consecutive years.

Based upon our experience in years past, as we approach the month of August we begin to see the IRS distribute automatic revocations to many charitable organizations. Usually, the IRS will do two things to notify an organization that its tax exemption has been automatically revoked.

1. The IRS will send a letter to the last known address of an organization, stating that its tax-exempt status has been automatically revoked because it has failed to file the required 990s for three consecutive years.
2. The IRS will also update its “Auto-Revocation List” of automatically revoked organizations, located on the IRS website. This list is updated monthly, and provides the organization’s “name, last known address, employer identification number (EIN), subsection of exemption, effective date of revocation, and date the name is placed on the Auto-Revocation List.” To check out the Auto-Revocation List, click here.

Being automatically revoked is a scenario that should be rectified as soon as possible, and later in this post I will give you some guidance in doing just that. But first, I want to explain why many of the automatic revocations happen in the first place.

Common reasons why automatic revocations happen

There is a common misunderstanding among many as to when a charitable organization (ministry) should begin filing Form 990. Many organizations incorrectly believe they are not required to begin filing Form 990 until they receive 501(c)(3) approval. The fact is that a ministry should file its first Form 990 for the year in which it obtains a tax ID number (FEIN). So, for example, if your ministry received its FEIN in 2015, then your first 990 annual information return would be due next year. In general, annual information returns are due by May 15th of each year. (Check out this blog post here for more information on Form 990 due dates.)

Another common reason a ministry may receive an automatic revocation is because they simply forget to file. Usually, a ministry that is still in the early developing stages does not have the resources available to hire a staff member to help with administrative requirements. Oftentimes, all responsibilities fall upon the shoulders of one individual, and with everything else going on in order to grow the ministry, this is something that can easily be forgotten. However, as you can see, it is important for this requirement be completed each year.

Regaining your tax-exempt status

Fortunately, if you receive(d) an automatic revocation from the IRS, it does NOT mean that you cannot regain your tax-exempt status. In Revenue Procedure 2014-11, the IRS explains four procedures that an organization may use to apply for reinstatement. These procedures are as follows:

• Streamlined Retroactive Reinstatement
• Retroactive Reinstatement Process (within 15 months)
• Retroactive Reinstatement (after 15 months)
• Post-Mark Date Reinstatement

Unfortunately, because of the substantial process of each reinstatement procedure, this blog post is not the best platform to explain each process. However, the important key to take from this is that there is a way to regain your tax-exempt status, and the sooner you seek reinstatement the easier the process will be. If you find yourself receiving, or if you have received, an automatic revocation letter, please do not hesitate to give us a call. You can reach us toll free at 877-494-4655 and one of our trained specialists will be glad to serve you and your ministry.

Churches beware

If you are a church and you happen to receive an automatic revocation from the IRS for failing to file Form 990 for three consecutive years, there could be a bigger issue at hand since churches are exempt from having to file Form 990. Most likely the reasoning is due to misclassification. Rather than being classified as a church under section 170(b)(1)(A)(i), you are probably approved under a different classification.

Now, there is a simple way for you to determine if you have been misclassified. To do this you will need to locate your 501(c)(3) approval letter. In the top right portion of the letter you should see where it reads “Public Charity Status”. For churches, the tax code referenced under “Public Charity Status” should read 170(b)(1)(A)(i). Additionally, a church’s approval letter should indicate (where the letter reads “Required Form 990”) that it is not required to file Form 990. If either the “Public Charity Status” or “Required Form 990” portion of your approval letter reads differently, it is imperative that those issues be addressed immediately.

We can help!

Keeping up with both the spiritual and administrative aspects of operating a ministry can be an arduous task, especially when all responsibilities rest upon your shoulders alone. I firmly believe that God has not called anyone to be a “Lone Ranger” in His kingdom. He places people and resources in your path to bring you assistance when most needed. It is our honor to serve you by lifting some of those administrative responsibilities off of your shoulders.

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