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Responding to Loss of Tax Exempt Status: Automatic Revocation and For-Cause Termination

Current and Retroactive Reinstatement, Notification Requirements and Filing Obligations

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, February 21, 2018

Recorded event now available

This course will provide advisers to nonprofit and exempt organizations with a guide to responding to and remedying loss of tax exempt status. The panel will highlight risk areas for exempt status termination, discuss reinstating 501(c)(3) exemption status due to inadvertent lapses, detail how to challenge incorrect termination of exempt status, describe steps needed to restore exempt status on a retroactive basis, and outline interim actions during the process of reinstating 501(c)(3) exemption. The panel will also offer insight on alternative strategies in instances where reinstatement may not be feasible or desirable.

Description

Nonprofit exempt organizations can lose their tax exempt status due to failure to file required information returns for three consecutive years. These terminations, required by operation of law with no prior exceptions, are referred to as “automatic revocations.” While the IRS sends notification of the status revocation via Notice CP120A, an exempt organization may be unaware of the loss of exempt status, leading to potentially serious consequences.

Tax exempt organization officers and advisers must proactively monitor the nonprofit entity’s exempt status. However, in cases of a revocation of federal tax exemption, particularly when the revocation is due to failure to make required filings, the IRS has established procedures for reinstatement, including retroactive restoration of exempt status.

Tax advisers serving nonprofits must have a thorough understanding of the steps to request reinstatement of an organization’s exempt status, as well as the critical steps for the organization during the time the exempt status is lapsed.

During the period of revocation, donors to the organization may not claim a tax deduction for any contribution made to the nonprofit. Also, many states tie their treatment of nonprofits to the organization’s federal tax exempt status. Nonprofits must be aware of their state’s notice requirements in case of revocation and reinstatement of tax exempt status.

Listen as our experienced panel provides a thorough and practical guide to responding to revocation of tax exempt status, including reinstatement procedures and notification requirements to state and local authorities and donors.

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Outline

  1. Most common causes of loss of tax exempt status
    1. Impact of revocation and actions needed during lapse period
    2. Verifying state status as nonprofit corporation
    3. Notifying donors of loss of exempt status
    4. Additional tax filing requirements
  2. Impact on private foundation donors
  3. Automatic revocation
  4. Categories of automatically revoked exempt organizations
  5. Rev. Proc. 2014-11
  6. Requesting reinstatement
  7. Retroactive reinstatement and streamlined procedures
  8. Challenging “for cause” revocation

Benefits

The panel will discuss these and other important topics:

  • IRS resources to verify that an exempt organization’s 501(c)(3) status has not been revoked
  • Grounds for automatic revocation of tax exempt status
  • How to claim retroactive reinstatement of exempt status
  • Challenging loss of tax exempt status for reasons other than automatic revocation due to non-filing
  • What an exempt organization must do upon notification of loss of exempt status

Faculty

Michelson, Louis
Louis E. Michelson
Law Offices of Louis E. Michelson

Mr. Michelson focuses his practice on income tax planning, charitable giving and other federal, state and local...  |  Read More

Wagenmaker, Sally
Sally R. Wagenmaker
Attorney
Wagenmaker & Oberly

Ms. Wagenmaker provides legal counsel in corporate, tax, employment, and real estate matters for nonprofits operating...  |  Read More

McLaughlin, Shirley
Shirley McLaughlin
Atty
Adler & Colvin

Ms. McLaughlin specializes in formation and tax-exempt status, public charities, private foundations, grantmaking and...  |  Read More