Based on feedback received by state nonprofit associations, including Colorado Nonprofit Association, an Internal Revenue Service (IRS) computer system glitch has caused some nonprofits to lose federal tax-exempt status in 2020.
Earlier this year, the IRS moved annual information return (Form 990 series) filing deadlines to July 15 for nonprofits that operate based on a calendar year. Normally, the deadline is May 15 but the IRS extended this deadline along with tax filing deadlines for individuals and businesses due to the COVID-19 pandemic.
Because of the glitch, IRS computer systems have not recognized some 2019 returns filed prior to the extended deadline. Federal law requires the IRS to automatically revoke tax exemption for any nonprofit that fails to file annual information returns (Form 990 series) for 3 consecutive tax years. The glitch seems most likely to affect nonprofits that filed 2019 returns after the May 15 deadline and missed several filing deadlines in recent years.
We've heard that the IRS has reversed automatic revocations if requested by nonprofits affected by the glitch. The IRS is working on correcting the glitch but it may take 30-45 days for this to happen. In the meantime, the IRS website lists the status of affected nonprofits as automatically revoked and does not include them in the list of organizations eligible for tax-deductible contributions (Publication 78). Revocation of tax-exempt status may affect eligibility for some grants if eligibility for tax-exempt status is required.
If you think your nonprofit organization may be affected by this glitch, we recommend taking action as soon as possible including the following steps:
- Search for your organization's name using the IRS tax exempt organization search. Choose Select All for a complete search result.
- If the organization is listed as being on the Publication 78 data list, then your organization is eligible for tax-deductible contributions
- If the organization is listed as on the Auto-Revocation List, then your organization is not currently eligible for tax-deductible contributions.
- If your organization has been automatically revoked despite filing a 2019 tax return, contact the IRS to confirm that the 2019 return and correct the situation. You may be asked to send a copy of your return or other documentation related to your 2019 return. Visit the new IRS webpage for more information.
- If your organization has been automatically revoked and did not file a 2019 tax return, then you may need to follow the IRS process for reinstatement.
- If your organization has recently filed its 2019 return or applied for reinstatement, check the date on the search result to see when it was last updated.
If you need help with getting tax-exempt status reinstated, we recommend searching our business member directory for an attorney who can help.
Again, the IRS is working on correcting the situation in general but may not immediately address your situation unless you make a request. The IRS keeps downloadable master lists of nonprofits eligible for tax-deductible donations and the auto-revocation list on its website.