What is Revenue Procedure 2014-11?

This published guidance was issued by the IRS on January 2, 2014 to provide procedures for reinstating the tax-exempt status of nonprofit organizations that have had their tax-exempt status automatically revoked under section 6033(j)(1) of the Internal Revenue Code for failure to file Form 990, Form 990-EZ, Form 990-PF, or Form 990-N for three consecutive years.

Link to IRS Revenue Procedure 2014-11 (opens PDF file on IRS web site).

Why is Revenue Procedure 2014-11 Important?

Rev. Proc. 2014-11 provides a streamlined way for a small nonprofit organization to have its tax-exempt status reinstated all the way back to the date it was revoked (ie, retroactively). Previously this was nearly impossible. The notice also provides clarified procedures for organizations that do not qualify for the streamlined procedures. This is a big deal.

When Congress passed the Pension Protection Act of 2006 it made major changes to the way nonprofit organizations are penalized when they fail to file their Form 990 on time. Failure to file for 3 consecutive years results in automatic revocation of the organization's tax-exempt status.

The organization could file an application to have its exempt status reinstated, but this left a gap between the date of revocation and the date of reinstatement. During that gap, the organization is not tax exempt. This affects donations and makes the organization subject to taxation on certain items of income.

Summary of Rev. Proc. 2014-11

Streamlined Process For Organizations Seeking Retroactive Reinstatement That Were Elegible to File 990-EZ or 990-N During the Three Consecutive Years that it Failed to Timely File:

• Must not have previously had tax-exempt status automatically revoked.
• Must re-apply by filing Form 1023 or 1024 (whichever applies) within 15 months of being notified of revocation.
• If the application is approved, the organization will be deemed to have reasonable cause for its failures to file returns on time.
• Exempt status will be reinstated retroactively to date of revocation.

For Organizations Seeking Retroactive Reinstatement that are Not Eligible to Use the Streamlined Process (ie, organizations that were not eligible to file the 990-EZ or 990-N):

• Must re-apply by filing Form 1023 or 1024 (whichever applies) within 15 months of being notified of revocation.
• Must establish a reasonable cause for failure to file a required return for at least one of the three consecutive years in which it failed to file.
• File returns for each of the three consecutive years for which a required return was not filed as well as any returns due after that period.
• IRS will not assess late-filing penalties if the application is approved and the organization is granted retroactive reinstatement.

For Organizations Seeking Retroactive Reinstatement When More Than 15 Months Have Passed Since Being Notified of Revocation:

• Must establish a reasonable cause for failure to file a required return for all three consecutive years in which it failed to file.
• File returns for each of the three consecutive years for which a required return was not filed as well as any returns due after that period.
• IRS will not assess late-filing penalties if the application is approved and the organization is granted retroactive reinstatement.

Reinstatement of Tax-Exempt Status from Post-Mark Date:

An revoked organization can apply for reinstatement of its tax-exempt status effective as of the date the application (Form 1023 or 1024) was mailed simply by sending in the application with the correct fee.

Transitional Relief

Transitional relief summarized below affect applications submitted after January 2, 2014. These may be re-applicants that were denied retroactive reinstatement on a previous application and are trying again under this Rev. Proc.

Pending Applications

The IRS will apply this Revenue Procedure to any applications that it has already received and are pending.

Previously Reinstated (not Retroactively)

If an organization applied for and received reinstatement of its tax-exempt status effective from the post-mark date (ie, not retroactive) prior to January 3, 2014 and WOULD HAVE qualified for retroactive reinstatement under the streamlined procedures will AUTOMATICALLY reinstated back to the date of original revocation. No notice to that effect will be sent by the IRS, so the organization will need to keep a copy of its determination letter together with a copy of Revenue Procedure 2014-11 in its records as documentation.

If an organization applied for and received reinstatement of its tax-exempt status effective from the post-mark date (ie, not retroactive) prior to January 3, 2014 and WOULD NOT HAVE qualified for retroactive reinstatement under the streamlined procedures, may reapply by submitting a copy of their application before May 2, 2014 (user fee is waived) and by complying with other requirements such as filing the delinquent returns (see above requirements).

The above is only a summary. Before taking any action, you MUST read Revenue Procedure 2014-11 opens PDF file on IRS web site).