Reinstatement After Automatic Revocation

What is Automatic Revocation?

In 2006, Congress enacted a law (section 6033(j) of the Internal Revenue Code) that requires the IRS to revoke the tax exempt status of non-profit organizations that have failed to file a required annual return for three consecutive years.  As of April, 2020, this law had led the IRS to revoke the tax exempt status of more than 880,000 non-profit organizations.    

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Automatic revocation should be viewed as an opportunity to do some organizational soul-searching.  Have there been positive steps toward the accomplishment of the organization's goals since it was created?  Does the progress that has been made justify the organization's continued existence?   Organizations that have decided it is worthwhile to re-apply to regain their exempt status after automatic revocation need to know the following:

Reinstatement

• The law requires a new application, and a new User Fee, before an organization's status can be reinstated. 
  
• You must use the EIN previously assigned to your organization on your reinstatement application.
  
• Reinstatement applications will not be automatically expedited.  The IRS will follow already established guidelines when reinstatement applicants request expedited processing.  (Form 1023-EZ applicants may not request expedited treatment.)
  
• Schedule E of the new (2020) electronic Form 1023 has questions specifically for automatically revoked organizations.
  
• Organizations seeking exempt status are required to file an exempt organization annual return while their exemption application is pending, unless they are otherwise exempt from filing.  Form 990-N is not required while reinstatement is pending. 
  
• The IRS usually requires that missed returns be filed, but will not impose late penalties for any of the delinquent returns that led to automatic revocation.  
  
• Reinstatements are effective as of the postmark on the reinstatement application envelope unless an organization specifically applies for retroactive reinstatement.  
  
• For specific details on how to apply for retroactive reinstatement, refer to Revenue Procedure 2014-11, where you will find a definition of "reasonable cause" for failing to file.
  
• The names of reinstated organizations will not be removed from the IRS Auto-Revocation list.
  
• To confirm an organization’s tax-exempt status has been reinstated, check for a brand new determination letter, check the Tax Exempt Organizations Search, or call 1-877-529-5500. 
  

In 2013, The National Taxpayer Advocate found that, "...the IRS makes reinstatement of an organization’s exempt status following automatic revocation unnecessarily burdensome."   Doubtless, the introduction of the Streamlined Form 1023-EZ in 2014 relieved some of that burden.  As of April, 2020, the IRS had reinstated more than 124,000 automatically revoked organizations.  (We do not know the total number of organizations that applied for reinstatement.)

For those who cannot use Form 1023-EZ to apply for reinstatement, it may be easier to recycle an earlier application, rather than starting from scratch.