According to recent IRS statistics, more than 272,000 organizations lost their tax-exempt status after failing to file their annual 990 information returns. Many of those groups are no longer operating, thus relieving an overburdened IRS database of some of its dead weight. Unfortunately, a host of active smaller organizations with annual revenues below $25K had their exempt statuses revoked in the process. Most of them simply did not become aware of the new law that went into effect in 2007 which created the 990-N postcard filing requirement for previously exempt small orgs.
Fortunately, the IRS is providing a second chance to those nonprofits to restore their exempt status. Notice 2011-43 spells out the procedure that will effect retroactive reinstatement by a resubmission of an updated Form 1023 before the end of 2012. Once reinstated, all donors who made gifts to the organization during the revoked period will be able to treat their donations as tax-deductible. Although that provides these small groups some measure of relief, many of them are still trying to figure out how to best approach their small, but loyal group of donors who just want assurance of their charitable tax deduction. This is an unfortunate but perhaps unavoidable consequence of the IRS’s massive database clean-up effort.