A Nonprofit corporation’s tax-exempt status is automaticly revocated when a tax-exempt organization does not file an annual information return or notice with the IRS for three consecutive years. Depending upon the organizations tax requirements, the organization must file Form 990, 990-EA, 990-PF or 990-N (e-Postcard) each year. Churches and certain church-related organizations are not required to file the annual information return or notice.
The automatic revocation is effective on the original (first) filing due date of the third annual return or notice. An organization is then placed on the “List of Automatically Revoked Organizations” posted on the IRS website.
The effect of losing tax-exempt status is that the organization is no longer exempt from federal from federal income tax. The organization may be required to file Form 1120, U.S. Corporation Income Tax Return or Form 1041, U.S. Income Tax Return for Estates and Trusts. The loss of federal tax exempt status may also result in the revocation of state tax exempt status.
Additionally, the loss of tax-exempt status for a nonprofit corporation means the organization is no longer eligible to receive tax-deductible contributions. Contributions are tax-deductible if made before an organization’s name appears on the Automatic Revocation List. Any contributions made after an organization’s name appears on the Automatic Revocation List are not tax deductible. If the contribution is not tax deductible, then the donor needs to be contacted.
Part 2 of this Blog will address reinstatement of tax-exempt status.
Ariel Bedell is an experienced attorney at The Loftin Firm. For questions relating to this blog or any other California nonprofit compliance, real estate, corporate governance, land use, or estate planning matter, contact Ms. Bedell at 760-814-9649.