In 2006 Congress passed the Pension Protection Act (“PPA”), mandating that most tax-exempt organizations file an annual information return with the IRS.  The PPA imposed upon small organizations a filing requirement for the first time in 2007.  More importantly, the PPA automatically revokes an entity’s tax-exempt status if it fails to file required returns for three consecutive years.
Recently, the IRS announced that approximately 275,000 organizations had automatically lost their tax-exempt status under the PPA because they failed to file the required annual reports for three consecutive years.  While the IRS believes a vast majority of these organizations are defunct, a large portion is likely active organizations that just failed to file their annual returns, or were unaware of the requirement.  A list of the organizations that have lost their tax exempt status may be found on the IRS’s website (   Being on the list should have no impact on donors who previously made deductible contributions to the auto-revoked organizations.  However, going forward organizations that are on the auto-revocation list that do not receive reinstatement are no longer eligible to receive tax-deductible contributions, and any income they receive may be taxable.
Recognizing the impact of a loss in tax exempt status, and the fact that many small organizations are managed by volunteers, the IRS issued guidance on how organizations can apply for reinstatement of their tax-exempt status, including retroactive reinstatement.  In addition, the IRS announced transition relief for certain small tax-exempt organizations – those with annual gross receipts of $50,000 or less for 2010 – that were made subject to the new filing under the PPA. The relief allows eligible small organizations to regain their tax-exempt status retroactive to the date of revocation and pay a reduced application fee of $100 rather than the typical $400 or $850 fee. Full details of the IRS’s guidance are available in Notice 2011-43Notice 2011-44 and Revenue Procedure 2011-36.
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