Federal Headlines Exempt Status Lost for Thousands of Organizations; Procedures for Reinstatement Issued; Relief Provided for Small Organizations (IR-2011-63, Rev. Proc. 2011-36, Notice 2011-43, Notice 2011-44, Announcement 2011-35)

The IRS has announced that approximately 275,000 organizations have lost their exempt status due to their failure to file annual reports for three years. While most of these organizations may be defunct, the IRS also announced steps to help organizations that still exist to apply for reinstatement of their tax-exempt status. Organizations that seek to have their exempt status reinstated are required to complete an application and pay a user fee. Small organizations (those with gross receipts of less than $50,000 in 2010) may regain their exempt status as of the date of revocation by paying a reduced fee.

Rev. Proc. 2011-36

The IRS has issued a procedure that modifies section 6.07 of Rev. Proc. 2011-8, I.R.B. 2011-1, 237, to provide a reduced user fee for applications for reinstatement of tax-exempt status filed by certain small organizations following the automatic revocation of their tax-exempt status under Code Sec. 6033(j). The reduced user fee applies only to small organizations that normally have annual gross receipts of not more than $50,000 in their most recently completed tax year and are otherwise eligible for the transitional relief described in Notice 2011-43.

The transitional relief is available to small organizations that have lost their tax-exempt status for failing to file the required annual notices for tax years beginning in 2007, 2008 and 2009. The amount of the reduced user fee is $100 and is effective for applications that are postmarked no later than December 31, 2012. Rev. Proc. 2011-36 is effective June 9, 2011. Rev. Proc. 2011-8, I.R.B. 2011-1, 237, is modified.

Notice 2011-43

The IRS has provided transitional relief in the form of retroactive reinstatement of tax-exempt status where a small exempt organization has had its exemption revoked for failure to file Form 990-N. A small exempt organization, one that normally has annual gross receipts not exceeding $50,000, is not required to file Form 990 like most exempt organizations. However, such an entity is required by Code Sec. 6033(i) to file Form 990-N, the e-Postcard.

The tax-exempt status of any organization that fails to file the required annual return or Form 990-N for three consecutive years is automatically revoked. To regain its exempt status, an organization that has had its exempt status revoked must apply for reinstatement, even if the organization was not originally required to apply for exemption. The organization must show reasonable cause for its consecutive filing failures. Small organizations that are eligible for the transitional relief are also eligible for a reduced user fee of $100 for the application of reinstatement of exempt status.

Under the transitional relief, the IRS will treat a small organization as having established reasonable cause for failing to file Form 990-N if it meets three criteria:

– The organization was not required to file an annual return (such as Form 990 or Form 990-EZ) for years beginning prior to 2007;

– The organization was eligible in each of its tax years beginning in 2007, 2008, and 2009 to file Form 990-N (e-Postcard); and

– On or before December 31, 2012, the organization submits to the IRS a properly completed and executed application for reinstatement of its exempt status.

Any organization meeting these criteria will have its exempt status reinstated retroactively to the date it was revoked. Automatic revocation can occur again if the organization fails to file Form 990-N for three more consecutive years.

An organization seeking reinstatement must apply using the appropriate application form filed by other applicants to obtain tax-exempt status, that is, either Form 1023 (for exemption under Code Sec. 501(c)(3)) or Form 1024 (for most other cases). A small organization seeking transitional relief must write “Notice 2011-43” on the top of the application form and must attach a statement as prescribed in the guidance.

Notice 2011-44

Guidance has been issued on obtaining retroactive reinstatement of tax-exempt status where a tax-exempt organization has had its exemption revoked for failure to file annual information returns for three consecutive years. An exempt organization is required by Code Sec. 6033(a)(1) to file an annual information return, such as Form 990, Form 990-EZ, or Form 990-PF. Small organizations excepted from this requirement must file an e-Postcard, Form 990-N, in lieu of the annual information return.

To regain its exempt status after it has been revoked, the organization is required by Code Sec. 6033(j)(2) to apply for reinstatement, even if the organization was not originally required to apply for exemption. In order for reinstatement to be retroactive to the date of revocation, the organization must show reasonable cause for its consecutive filing failures. The guidance discusses the meaning of “reasonable cause” in this context.

An organization seeking reinstatement must apply using the appropriate application form filed by other applicants to obtain tax-exempt status, that is, either Form 1023 (for exemption under Code Sec. 501(c)(3)) or Form 1024 (for most other cases). The organization must also pay the appropriate user fee. The organization should write “automatically revoked” on the top of the application form and the envelope. Except in the case of small exempt organizations, an application for reinstatement must be made within 15 months of the later of the revocation letter or the posting of the organization’s name on the IRS’s revocation list.

An organization (other than a small organization) seeking to have its tax-exempt status reinstated retroactively must include, along with its application, a request for retroactive reinstatement. The request must include the following:

– A written statement with facts supporting its claim of reasonable cause for failing to file required returns or notices for three consecutive years;

– A written statement describing the safeguards the organization has implemented to ensure that there will be no future failures to file required returns;

– Evidence to substantiate all material aspects of the above statements;

– Properly completed and executed annual information returns for all years during and after the three-year period in which the organization failed to file required returns;

– Properly completed and executed Forms 990-EZ for all years during and after the three-year period that the organization was eligible to file Form 990-N but failed to file either that form or an annual return; and

– An original declaration as specified in the guidance.

The IRS and the Treasury Department are requesting comments on this guidance, which must be submitted by August 19, 2011.

Announcement 2011-35

The IRS will publish the list of organizations that have had their federal tax-exempt status automatically revoked for failing to file an annual return or notice for three consecutive years as required by Code Sec. 6033(j) on its website at http://www.irs.gov. The auto-revocation list will not appear in the Internal Revenue Bulletin.

IR-2011-63,

2011FED ¶46,382

Rev. Proc. 2011-36, 2011FED ¶46,383

Notice 2011-43, 2011FED ¶46,384

Notice 2011-44, 2011FED ¶46,385

Announcement 2011-35, 2011FED ¶46,386

Other References:

Code Sec. 401

CCH Reference – 2011FED ¶17,507.042

CCH Reference – 2011FED ¶17,507.0425

CCH Reference – 2011FED ¶17,507.2531

Code Sec. 403

CCH Reference – 2011FED ¶18,282.41

Code Sec. 408

CCH Reference – 2011FED ¶18,922.0216

CCH Reference – 2011FED ¶18,922.0459

CCH Reference – 2011FED ¶18,922.116

CCH Reference – 2011FED ¶18,922.272

CCH Reference – 2011FED ¶18,922.40

CCH Reference – 2011FED ¶18,922.722

Code Sec. 408A

CCH Reference – 2011FED ¶18,930.19

Code Sec. 412

CCH Reference – 2011FED ¶19,125.465

Code Sec. 431

CCH Reference – 2011FED ¶20,181.0273

Code Sec. 501

CCH Reference – 2011FED ¶22,604.10

CCH Reference – 2011FED ¶22,660.10

Code Sec. 503

CCH Reference – 2011FED ¶22,683.87

Code Sec. 507

CCH Reference – 2011FED ¶22,780.15

Code Sec. 509

CCH Reference – 2011FED ¶22,812.026

CCH Reference – 2011FED ¶22,812.50

Code Sec. 511

CCH Reference – 2011FED ¶22,825.101

Code Sec. 521

CCH Reference – 2011FED ¶22,882.196

Code Sec. 4971

CCH Reference – 2011FED ¶34,324.021

CCH Reference – 2011FED ¶34,324.50

Code Sec. 6033

CCH Reference – 2011FED ¶35,425.068

CCH Reference – 2011FED ¶35,425.24

CCH Reference – 2011FED ¶35,425.25

CCH Reference – 2011FED ¶35,425.33

Statement of Procedural Rules Sec. 601.201

CCH Reference – 2011FED ¶43,360.031

CCH Reference – 2011FED ¶43,360.173

CCH Reference – 2011FED ¶43,360.205

Tax Research Consultant

CCH Reference – TRC RETIRE: 30,404.10

CCH Reference – TRC RETIRE: 51,050

CCH Reference – TRC RETIRE: 51,400

CCH Reference – TRC RETIRE: 63,056.10

CCH Reference – TRC RETIRE: 66,650

CCH Reference –

TRC IRS: 12,200

CCH Reference – TRC IRS: 12,200.60

CCH Reference – TRC IRS: 12,230.20

CCH Reference – TRC IRS: 12,230.25

CCH Reference –

TRC IRS: 12,302

CCH Reference – TRC EXEMPT: 12,054.20

CCH Reference – TRC EXEMPT: 12,056

CCH Reference – TRC EXEMPT: 12,102

CCH Reference – TRC EXEMPT: 12,102.05

CCH Reference – TRC EXEMPT: 12,252.10

CCH Reference – TRC EXEMPT: 12,252.15

CCH Reference – TRC EXEMPT: 18,156

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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