Nonprofit Tax Tip – §501(c)(3) Reinstatment

More than 275,000 nonprofits lost exempt status in July of 2010. Since that time, the IRS has continued to revoke the exempt status of nonprofits that fail to file a 990N, 990EZ or 990 for three consecutive years.

Consequences for having exempt status revoked are severe – the nonprofit loses its §501(c)(3) status, no longer qualifies for most grants, donations are no longer tax-deductible and (horrors!) net income could be taxed at for-profit corporation rates!

In order to regain §501(c)(3) status, nonprofits must file a new Form 1023 Application for Tax Exempt Status. This is a lengthy and somewhat complex form. There is also a salty filing fee – $400 for nonprofits with gross receipts less than $10K per year and $850 for nonprofits with gross receipts $10K or greater.

For small nonprofits, this fee can be reduced to $100 upon request to and approval by the IRS. However, in order to take advantage of this reduced fee, a nonprofit MUST FILE the Form 1023 by December 31, 2012.

If your nonprofit lost its exempt status, and you think you will re-file – don’t delay! File today!