Streamlined tax exempt reinstatement in pictures

 

Lots of small homeschool nonprofits find themselves in a awkward situation.

Their tax exempt status was revoked by the IRS and they didn’t even know it! Now they wonder how they can get tax exempt status back.

The IRS recently introduced a “streamlined” process to get tax exempt status reinstated. It’s all explained in IRS Rev Proc 2014-11 if you like reading IRS documents!

What the IRS calls “streamlined” means they went from a snail’s pace to a turtle’s pace! This new procedure still involves a lot of paperwork (the IRS loves paper) and paying an application fee. It may also include back filing the Form 990 Information returns you failed to file.

I created a flowchart to explain the process in pictures. I hope it helps.

RevProc_2014-11flowchart page 1 Download page 1  of the IRS Rev Proc 2014-11 Streamlined Reinstatement Process as a pdf document

 

RevProc_2014-11flowchart page 2Download Page 2 of the IRS Rev Proc 2014-11 Streamlined Reinstatement Process as a pdf document

 

If you have any questions about getting your homeschool organizations tax exempt status reinstated, please contact me. Carol Topp, CPA. We can set up a phone consultation to see where you are and what the best option is for your organization.

Carol Topp, CPA

How come we never had to file anything with the IRS before?

Dear homeschool leader,

Did you just hear the shocking news that all nonprofit organizations have to start filing annual returns with the IRS?

You may be wondering, “What changed? We never had to file anything before!” And you’d be right.

For many years the IRS had a problem: nonprofit organizations were not giving them annual information returns (Form 990EZ or Form 990). The IRS let small organizations (under $25,000 per year was considered small) get by without doing any annual filings, but the IRS couldn’t tell if an organization failed to file an annual return because

  1. The organization had died or
  2. The organization had less than $25,000 in income and wasn’t required to file a return or
  3. The organization was large and just not filing a return with the IRS. IOW, they were not playing nice and the IRS didn’t like that!

The IRS found some nonprofits are not following the rules and (gasp!) complained to Congress.

Congress passes the Pension Protection Act in 2006.

Photo credit: kakisky from morguefile.com

So the IRS got Congress to pass the Pension Protection Act in 2006. It required two things from nonprofits:

1. All small organizations (revenues of less than $25,000 per year) had to start filing an electronic form to the IRS every year. What the IRS called the 990N or their “e-postcard.”

and

2. All tax-exempt organizations that didn’t file an information return for three consecutive years will automatically lose their tax-exempt status. I call it the “3 strikes and you’re out” rule.

 

So here’s the timeline:

2006: Pension Protection Act requires annual electronic notice from all small nonprofits.
2007, 2008, 2009 were the first years that the annual notification requirement was in place.
2010: The first automatic revocations take place. The “3 strikes, you’re out” rule.

Word about the new required annual filing has been slow to get out. After all the IRS doesn’t have a big marketing budget. They sent letters, created press releases and even created a YouTube video, but a lot of small nonprofits were still in the dark.

Slowly, a lot of small organizations learned that their tax exempt status had been revoked and they didn’t even know about it! I guess the IRS got an earful of complaints because they (finally) created a system where small nonprofits could get their tax exempt status reinstated.

IRS created a “streamlined” reinstatement process for nonprofits

The process is outlined in IRS Revenue Procedure 2014-11 that came out in January 2014. Yes, that’s 2014. Eight years after the whole reporting requirement was enacted by Congress. We never claimed the IRS was speedy, did we?

The IRS loves paper and so the Rev Proc 2014-11 requires nonprofits to send the IRS a lot of paper. They have to file the rather long Application for Tax Exemption (Form 1023 or 1024) and probably file their annual information returns (Form 990) way back to 2008.

I’m not quite sure what’s streamlined about this, but I guess to a turtle, a snail is speedy!

So that’s why you are wondering if the IRS has some sort of new reporting requirement. It’s not really new, it’s 8 years old, but maybe you’re just now hearing about it.

What to do now

  • Brush up on the Form 990N and start filing it now!
  • Search the IRS list of revoked organizations to see if your nonprofit is listed there.
  • Read Rev Proc 2014-11 if you like reading IRS jargon to see what paperwork you need to file with the IRS to get your tax exempt status reinstated.
  • Or better yet, arrange a phone call to talk over your situation with me, HomeschoolCPA, Carol Topp. I’m pretty good at understanding homeschool organizations and can help you know where you stand with the IRS and what to do next.

Thanks to Peter B. Nagel over at  http://www.cobar.org/index.cfm/ID/20108/subID/26452/CORP for providing the history of the IRS rules.

Carol Topp, CPA

 

 

 

IRS has streamlined procedure to get tax exempt status reinstated.

Bloomberg News The Internal Revenue Service building in Washington, D.C.

Good news for nonprofits that didn’t know they needed to be filing annual returns with the IRS (990/990-EZ/990-N) and lost their tax exempt status.

The IRS has a streamlined  program to give retroactive reinstatement of tax-exempt status if the organization applies within 15 months after the later of the date of the revocation letter, or the date on which the IRS posted the organization’s name on a revocation list.

Nonprofits must reapply for tax exempt status within 15 months of when tax exempt status was revoked, but at least the IRS will reinstate back to the date it was revoked. They used to only reinstate nonprofits back to the postmark of the application leaving a gap when the poor nonprofit had to file and pay taxes!

This happened to several homeschool groups. They either didn’t know about the required IRS annual reports (990/990-EZ/990-N), or missed a deadline and had their tax exempt status revoked. A few of them had a gap of several months (or years) of when they were not tax exempt and had to file and pay corporate income taxes.

For more details on the new IRS program: http://www.accountingtoday.com/news/IRS-Offers-Ways-Groups-Regain-Tax-Exempt-Status-69160-1.html?taxpro

http://www.davisbrownlaw.com/davis-brown-tax-law-blog-article.aspx?id=1859

If you like reading IRS documents: IRS Revenue Procedure 2014-11

What does this mean for your homeschool group?

1. Start filing the Form 990-N. EVERY nonprofit is required to be filing this annual information return with the IRS. Read this blog post. Failure to file for 3 consecutive years means your tax exempt status is automatically revoked!

2. If you received a letter from the IRS for not filing the Form 990/990-EZ/990-N, contact me about getting your tax exempt status reinstated. Or even without a letter from the IRS, if your organization thinks it has never filed a 990,  contact me

 

Carol Topp, CPA

Helping Homeschool Leaders