Revocation of Tax Exemption

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If your nonprofit fails to file its annual return (Form 990) for three consecutive years, the IRS will automatically revoke its tax-exempt status. This automatic revocation happens by operation of law – there are no exceptions.

Check whether your nonprofit is tax-exempt

The IRS maintains a list of all nonprofits that are tax-exempt called, “Select Check,” that is updated regularly by the IRS. Check the list. If your organization is not listed, contributions to it are no longer tax-deductible to the donor(s). Those charitable nonprofits that have lost their tax-exempt status for reasons other than failure to file their annual reports are also listed on the IRS website.

What happens when a nonprofit’s tax-exempt status is revoked?

Revocation means that your nonprofit is no longer exempt from federal income tax and will have to pay corporate income tax on annual revenue. Also:

  • The organization may be subject to back taxes and penalties for failure to pay corporate income taxes if the effective date of revocation was in a prior tax year.
  • Revocation may also mean that any state tax exemptions that your nonprofit received – such as exemptions for income tax, property tax, and sales/use tax -- that are dependent on federal tax-exempt status, may also be revoked now.
  • Revocation also means that your organization will not be listed in IRS Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986, which is the official list of organizations eligible to receive tax-deductible charitable contributions.
  • Donors will not be eligible to receive a tax deduction for their gifts to the organization after the revocation date.
  • Most private foundations are unlikely to give a grant directly to nonprofits that are not tax-exempt because their guidelines normally require grantees to be recognized as tax-exempt public charities.

What if automatic revocation happened in error?

If you believe that your nonprofit’s tax-exempt status was automatically revoked in error, the IRS encourages you to contact its Customer Account Services (toll-free): (877) 829-5500. NOTE: Before calling the IRS, be sure to obtain copies of all documentation that you have showing a mistake was made (such as copies of correspondence to or from the IRS demonstrating that an annual return, IRS Form 990 was filed within the last three years).

Remember that once a charitable nonprofit is no longer tax-exempt, contributions to it are not eligible for a tax deduction. Always be transparent with donors about the tax status of your nonprofit.

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