News & Insights

The IRS regularly revokes the tax-exempt status of not-for-profits — mostly for failing to file annual information returns. Losing your exempt status can be devastating. Donors won’t be eligible to deduct contributions to your organization, grant-makers probably won’t even consider your applications and you may become retroactively liable for taxes. So the sooner you regain your status, the better. Here’s how.

Filing for Exemption Recognition

If your nonprofit is required to file an annual Form 990, 990-EZ or 990-N (e-postcard) and it fails to do so for three consecutive years, your exempt status will automatically be revoked. However, you can potentially regain it. First, make sure your organization is registered with pay.gov. Then, you’ll likely need to submit one of these electronic forms:

• Form 1023, “Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code,” or
• Form 1024, “Application for Recognition of Exemption Under Section 501(a) or Section 521 of the Internal Revenue Code.”

Smaller organizations may be able to have their status retroactively reinstated effective from the revocation date. To qualify, your nonprofit must have been eligible to file either Form 990-EZ or 990-N for each of the three consecutive years and not have previously had its tax-exempt status automatically revoked. To apply for retroactive reinstatement, file the applicable form within 15 months or the later date of 1) the IRS revocation letter, or 2) when the IRS posted your nonprofit’s name on its website. If you aren’t eligible for retroactive reinstatement, your organization’s activities between the revocation date and reinstatement date will be considered taxable. This includes donors’ contributions.

Supporting Your Request

When you file for recognition of exemption, you’ll attach a detailed statement that provides reasonable cause for failing to file required returns in each of the three consecutive years. You should state the facts that led to each failure, the continual failures and the discovery of the failures, and describe the steps taken to avoid or mitigate them. In addition, you’ll need to include:

• Statements that describe safeguards put in place and steps taken to avoid future failures,
• Evidence that supports all material aspects of those two statements,
• Properly completed and executed tax returns for all taxable years during and after the three-year period your organization failed to file, and
• An original declaration dated and signed by an authorized person in your organization such as an officer or director.

Finally, you’ll be required to pay a filing fee.

Qualifying Again

Assuming you file correctly and submit all required paperwork that shows your organization qualifies, it’s likely to regain its tax-exempt status. At that point, the IRS will issue a new determination letter and update its records that confirm your eligibility to receive tax-deductible contributions. If you don’t qualify for retroactive reinstatement, generally, the effective date of reinstatement will be the date your exemption application was submitted. But if your nonprofit is retroactively reinstated, you may be able to request an abatement of any penalty the IRS may have assessed.

Essential Help

If your tax-exempt status is revoked and you’re unsure how to proceed, contact us. In addition to helping you file for reinstatement, we’ll assist you in establishing procedures for future compliance. ©2025

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Maner Costerisan is trusted by nonprofit organizations across Michigan for accounting and consulting support. If you need help maintaining compliance, our Nonprofit experts are ready. Contact us today at maner@manercpa.com or by calling us directly at 517.323.7500.