One of the most unwanted notifications a not-for-profit organization can receive is IRS Notice CP-120A—the official notice that the organization’s tax-exempt status has been revoked. But if you do receive this, don’t panic; there are ways to restore your status.

All tax-exempt not-for-profits are required to file Form 990, Form 990-EZ, or Form 990-N annually. If an organization fails to file the proper form for three consecutive years, its tax-exempt status is automatically revoked with no warning and no process for appeal. The automatic revocation is effective on the original filing due date of the third annual notice.

How to Regain Tax-Exempt Status

Fortunately, not-for-profits can regain their tax-exempt status even after receiving Notice CP-120A. Here are the steps to follow to apply for reinstatement:

1. Let the public know about your not-for-profit status revocation.

Once your not-for-profit status has been revoked, donations made to your organization are no longer tax-deductible to donors. So you must be transparent with donors and publicly address your status revocation across all channels, including:

• Your Website: Change any content on your website that describes your not-for-profit as a tax-exempt organization. Also consider adding a notice that explains the situation to donors and the steps being taken to regain your tax-exempt status.
• Other Communication Channels: Check your organization’s email templates, newsletters, social media channels, etc. for any mentions of your tax-exempt status and change these immediately.
• Donation Solicitations: Remove the term “tax-deductible” from any communications or messages asking supporters to donate money or assets to your organization. You may no longer solicit donations as a tax-exempt organization, either explicitly or implicitly, once your not-for-profit status has been revoked.

A lack of transparency with donors about revocation of your tax-exempt status could violate state and federal statutes and lead to penalties and injunctions against your organization. Donors can still deduct contributions made before the status was revoked.

2. Apply for reinstatement of not-for-profit status.

Once not-for-profit status has been revoked, an organization must go through the application process to have it reinstated. Use Form 1023 (or Form 1023-EZ) like you did originally, except this time you will indicate that the application is for reinstatement. You’ll need to provide the same level of detail, including bylaws and articles of incorporation, as you did with your original application.

• You may also need to submit the missing forms that weren’t submitted over the past three years. Depending on your organization’s size and classification, these include:
• Form 990 (Standard): not-for-profits with annual gross receipts over $200,000 and total assets over $500,000.
• Form 990-EZ: not-for-profits with annual gross receipts under $200,000 and total assets under $500,000.
• Form 990-N (e-Postcard): not-for-profits with annual gross receipts of $50,000 or less.
• Form 990-F: Private foundations of any size.

Note that you do not have to file new articles of incorporation in order to regain tax-exempt status. As long as you have been following state requirements, such as filing a corporate annual report, your organization still legally exists as a not-for-profit corporation.

If the IRS approves your reinstatement application, it will issue a new determination letter and include your organization’s name under the list of those in good standing in the next update of Publication 78. Donors can rely on the new IRS determination letter as of the stated effective date on the letter.

How to Maintain Tax-Exempt Status

Once your tax-exempt status is reinstated, it’s crucial to implement proper procedures to ensure it is not revoked again in the future. This includes maintaining thorough and accurate financial records and making sure you file the proper Form 990 with the IRS promptly every year. Make this an essential step in your annual systems and you’ll avoid extra work and stress down the line!

We’re here to help. If you’ve received notification that your organization’s tax-exempt status has been revoked or if you simply want to make sure you’re in compliance, give us a call for assistance.