Why was our status revoked without a hearing?

IRC 6033(j) makes revocation automatic. An organization that fails to file a required annual return or notice for 3 consecutive years is treated as revoked on the due date of the third return.

Can we get our exemption back?

Yes, by applying. IRC 6033(j)(2) requires an application for reinstatement even if the organization was not originally required to apply.

Can reinstatement be retroactive?

Possibly. If the organization shows reasonable cause for the failure to file, the IRS may, in its discretion, reinstate exemption effective from the date of revocation.

We have a letter saying we do not have to file annually. What now?

The IRS says to call 877-829-5500, or send your documents by fax or mail to the TE/GE address it lists for that situation.

What returns do we file now?

The IRS says to file any appropriate federal return, such as Form 1120 or Form 1041, and to review the instructions to determine whether and when the organization needs to file.

Can the late filing penalty be removed?

The IRS says no penalty is imposed if the organization shows the failure was due to reasonable cause. Attach a cover letter explaining the late filing to the return.

IRS CP120A: Tax-Exempt Status Automatically Revoked

CP120A means your organization lost tax-exempt status after three years without a Form 990 filing. What that changes and how to seek reinstatement.

What CP120A means

CP120A tells your organization that its tax-exempt status has been revoked for failing to file a Form 990 series return for three consecutive years. The IRS adds a second consequence: the organization is no longer eligible to sponsor a tax-sheltered annuity plan under IRC 403(b).

This is not a proposed revocation. It already happened, by operation of law.

Why you got it

IRC 6033 requires most exempt organizations to file an annual return. Small organizations whose gross receipts are normally below the filing threshold file the electronic notice under IRC 6033(i), known as the Form 990-N e-Postcard, instead.

IRC 6033(j)(1)(B) is the rule that bit. If an organization fails to file the required annual return or notice for 3 consecutive years, its exempt status is considered revoked on and after the due date of the third return or notice. The statute also tells the IRS to publish and maintain a list of revoked organizations.

The law requires a warning before that point. IRC 6033(j)(1)(A) says that after 2 consecutive years without a filing, the IRS is to notify the organization that it has no record of a return and that revocation will follow if the next one is not filed. Many small organizations never see that warning because the mail went to an old address or an officer who left.

No hearing, no appeal, no discretion. Three missed years and the exemption is gone automatically.

What revocation changes

Income tax. Without exemption, the organization may owe federal income tax and must file the appropriate return. The IRS says that may be Form 1120 or Form 1041, depending on how the organization is structured.
Retirement plans. The organization can no longer sponsor a 403(b) plan.
State obligations. The IRS says to contact your state to find out how federal revocation affects your state filing requirements and responsibilities.
Public list. The organization appears on the IRS's published list of revoked organizations.

What to do now

Confirm the facts. Were the three returns really not filed? If you have proof you met the filing requirement, the IRS says to call 877-829-5500, or fax or mail documents to the Ogden address it lists for that purpose.
Check for an exception letter. If you have an IRS letter saying the organization doesn't have to file annually, the IRS lists a separate fax number and a Cincinnati TE/GE address for those documents.
File required returns. The IRS says to file any appropriate federal return, such as Form 1120 or Form 1041, after reviewing the instructions to see whether and when you must file.
Apply for reinstatement. IRC 6033(j)(2) requires a new application. The IRS page lists Form 1023-EZ, Form 1023, Form 1024, and Form 1024-A, each with its own user fee set by revenue procedure, which the IRS updates annually.
Ask for retroactive reinstatement if you can show reasonable cause.

Retroactive reinstatement

IRC 6033(j)(3) is the provision that matters most. If the organization shows reasonable cause for failing to file, the IRS may, in its discretion, reinstate exemption effective from the date of revocation. That closes the gap, so the organization is treated as exempt for the period it was revoked.

The IRS's page on automatic revocation explains the reinstatement procedures, and the CP120A page points to it. Read it before you file the application, because the procedure you use affects the effective date you can get.

Penalties for late returns

IRC 6652(c)(1)(A) imposes a daily penalty when an exempt organization files late or files an incomplete return. The statute's base amounts are $20 per day, capped at the lesser of $10,000 or 5 percent of gross receipts, and $100 per day capped at $50,000 for organizations with gross receipts over $1,000,000. IRC 6652(c)(7) adjusts those amounts for inflation for returns required to be filed after 2014, so the figure on your notice may be higher. The penalty does not apply if the failure was due to reasonable cause. The IRS says to attach a cover letter explaining the late filing.

What about donors?

Donors care whether their gifts are deductible. Revocation is published, and donors and grant makers check. If reinstatement is retroactive under IRC 6033(j)(3), the gap is closed. If it is not, gifts made during the gap may be treated differently. Be accurate with donors about the dates while the application is pending, and keep a copy of the reinstatement letter when it comes.

Electronic filing

IRC 6033(n) requires organizations filing annual returns under this section to file electronically. The IRS says it will not accept Form 990 series returns filed on paper. Use an approved e-file provider.

Keep it from happening again

Put the annual filing deadline on the calendar of at least two officers or board members.
Keep the organization's mailing address current with the IRS so notices reach someone who will read them.
Know which return you file. Organizations with gross receipts normally at or below the threshold may be eligible for Form 990-N. Others file Form 990-EZ or Form 990. The IRS's filing threshold guidance explains which applies.
Choose an e-file provider before the deadline, not the week of.
Keep a copy of the filing acceptance every year.

The two-year warning in IRC 6033(j)(1)(A) only helps if someone reads it. Make sure someone will.

What not to do

Do not keep telling donors their gifts are deductible without checking the effective dates of revocation and any reinstatement.

Do not file a late Form 990 and assume that restores exemption. The statute requires an application.

Do not let the next year slip. Put the filing deadline on the calendar of more than one officer.

The law behind CP120A

IRC 6033(j) imposes automatic revocation after 3 consecutive years without a required return or notice, requires an application for reinstatement, and allows retroactive reinstatement for reasonable cause. IRC 6033(i) creates the e-Postcard requirement for small organizations. IRC 6033(n) requires electronic filing. IRC 6652(c) imposes the late filing penalty and its inflation adjustment.

If your organization lost its exemption and you want help planning the reinstatement, call us at (813) 229-7100.