Avoiding Automatic Revocation, and the Reinstatement Process

For nonprofit organizations, maintaining tax-exempt status isn’t just important—it’s their lifeline. Losing tax exemption can jeopardize their very existence, cutting off access to critical donor support, imposing new tax burdens, and undermining their ability to carry out their mission. The most common cause? Failing to file IRS Form 990 for three consecutive years leads to automatic revocation of tax-exempt status.

The IRS imposes strict requirements to ensure compliance, including the timely filing of the appropriate Form 990 series. Organizations that fail to file the appropriate version of this form for three consecutive years face automatic revocation of their tax-exempt status under Internal Revenue Code (IRC) Section 6033(j)(1)(B). For example, a calendar-year organization that applied for and received tax-exempt status in 2023 but did not file the required Form 990 series in subsequent years would have its exempt status revoked in May 2026. A recent Private Letter Ruling (PLR) illustrates the harsh reality of this consequence:

“This is a final determination that you don’t qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3)... You regularly filed Forms 990-N. However, your organization had an average of more than $50,000 in gross receipts and more than $500,000 of assets. Thus, you consistently did not file the appropriate annual return... If an organization... fails to file an annual return or notice required under either subsection for 3 consecutive years, such organization’s status as an organization exempt from tax under Section 501(a) shall be considered revoked”

Read the full text of the Private Letter Ruling here.

In this post, we’ll break down the IRS Form 990 series filing thresholds, explore common compliance pitfalls that lead to revocation, and outline proactive steps nonprofits can take to avoid these risks and secure their futures.

Form 990 Filing Thresholds

Form 990 is an annual reporting requirement set by the IRS for nonprofit organizations, ensuring transparency and accountability. The IRS uses your organization’s gross receipts and total assets to determine which form you must file:

Form 990-N (e-Postcard): Gross receipts that are normally ≤ $50,000. Organizations can file their Form 990-N directly through the IRS’s online portal. Access the Form 990-N filing website here.

A few notes before you rush in assuming that you only need to do the 990-N (the easiest by far of the filings):

• 990-N is NOT an option for private foundations or supporting organizations.

• “Gross receipts” are the total amounts the organization received from all sources during its annual accounting period, without subtracting any costs or expenses.

• Gross receipts are considered to be “normally” $50,000 or less if the organization:

  • Has been in existence for 1 year or less and received, or donors have pledged to give, $75,000 or less during its first tax year;

  • Has been in existence between 1 and 3 years and averaged $60,000 or less in gross receipts during each of its first two tax years; and

  • Is at least 3 years old and averaged $50,000 or less in gross receipts for the immediately preceding 3 tax years (including the year for which calculations are being made).

Form 990-EZ: Gross receipts $50,000–$200,000 and assets < $500,000. While less complex than the full Form 990, it still requires detailed reporting of income, expenses, and activities.

Form 990: Gross receipts > $200,000 or assets ≥ $500,000.

Form 990-PF: This is specifically for private foundations.

Filing the wrong form—or failing to file—can result in revocation. For example, an organization consistently filing Form 990-N despite earning over $50,000 could lose its exempt status.

Common Mistakes That Lead to Automatic Revocation

Relying Solely on Volunteers for Compliance

Many nonprofits, especially smaller organizations, rely heavily on volunteers to handle their compliance obligations. While volunteers are invaluable, this approach often leads to inconsistencies, missed deadlines, and compliance errors—particularly when annual officer turnover occurs. Each new group of volunteers may lack the necessary training or awareness of the IRS requirements, resulting in gaps in filing responsibilities and exposing the organization to potential penalties or automatic revocation of tax-exempt status.

To mitigate these risks use professional support, train board members, and document procedures in a compliance guide that outlines key processes and requirements. Organizations that prioritize compliance as an ongoing, shared responsibility—rather than relying solely on volunteers or one person—are better positioned to maintain their tax-exempt status and avoid unnecessary challenges.

Poor Record-Keeping

Disorganized financial records are one of the most common reasons nonprofits struggle with compliance, particularly when it comes to preparing accurate Form 990 filings. Poor record-keeping can lead to incorrect filings, incomplete submissions, or missing key information altogether. This issue often becomes a snowball effect: the longer the records remain disorganized, the harder it becomes to correct errors, especially when trying to catch up on missed filings. These challenges can result in penalties, loss of donor trust, or even automatic revocation of tax-exempt status.

For example, an organization with incomplete records may inadvertently report incorrect gross receipts, which could trigger the wrong Form 990 filing or cause delays in reconciling past errors. When records from prior years are unclear, it becomes even harder to rebuild a clear picture of the organization’s finances.

To mitigate these risks, implement a reliable accounting system, conduct regular financial reviews, and use nonprofit accounting tools. By prioritizing sound record-keeping practices, nonprofits can not only ensure compliance but also make informed financial decisions that effectively advance their mission.

Lack of Board Oversight

Lastly, effective board oversight is essential in ensuring timely and accurate Form 990 filing. One practical approach is to include the Form 990 filing as a standing item on the board’s agenda at the end of each fiscal year. However, depending on your organization’s structure and operations, other methods of oversight may be more suitable. The key is to establish a consistent process that ensures the board regularly reviews the Form 990 as part of its annual responsibilities.

Reinstatement Options After Auto Revocation

If your exempt organization has been automatically revoked, there are four potential ways to seek reinstatement. Acting promptly can greatly simplify the reinstatement process. The four options for reinstatement are:

·       Streamlined Retroactive Reinstatement

·       Retroactive Reinstatement Within 15 Months of Revocation

·       Retroactive Reinstatement (more than 15 months after revocation)

·       Post-Mark Date Reinstatement

The primary distinction between the first two options is based on the size of the organization and its Form 990 filing requirements, as well as whether this is the organization's first revocation. Smaller organizations that file Form 990-N or Form 990-EZ, and have only been revoked once, can use the streamlined process. Larger organizations, such as those that file Form 990, or organizations that have been revoked before, must use the second option. For reinstatement applications filed more than 15 months after revocation, the third option applies. The fourth option is for organizations not seeking retroactive reinstatement but only recognition from the postmark date of the reinstatement application.

You can find more detailed guidance on these reinstatement options, including instructions and eligibility, directly from the IRS here and in Revenue Procedure 2014-11.

Process for Filing for Reinstatement

To file for reinstatement, your organization has to essentially start over with the IRS and file either Form 1023-EZ, Form 1023, or Form 1024, which the organization previously filed to first obtain tax exemption. While most of the information from the original Form 1023 may be the same, it cannot just be duplicated.

Reasonable Cause Statement for Reinstatement

For organizations seeking retroactive reinstatement, the IRS requires a Reasonable Cause Statement explaining the failure to file one or more years of Form 990. This narrative is critical to reinstatement and should clearly outline why the filings were missed and what steps have been taken to prevent recurrence. The IRS evaluates reasonable cause by considering all pertinent facts and circumstances that led to the failure. The organization must provide a detailed description of:

·       The cause of the failure to file: This could include administrative errors, misunderstandings about filing requirements, or unforeseen events such as illness, natural disasters, or other impediments that prevented filing.

·       How the failure was discovered: The organization needs to explain how it learned about the missed filing, whether through self-audit, notification from the IRS, or an external review.

·       The steps taken to avoid future failures: The IRS wants to know what corrective actions the organization has implemented or will implement to prevent future compliance issues. These could include process improvements, staff training, or new systems for tracking filing deadlines.

In determining whether the organization has established reasonable cause, the IRS will consider the following factors, though no single factor is determinative:

·       Erroneous written information from the IRS:  If your organization relied in good faith on incorrect written advice from the IRS (after fully disclosing relevant facts), this can support a reasonable cause claim

·       Events beyond the organization’s control: Severe events—such as the sudden death of a key officer, natural disasters, or major financial disruption—may excuse the failure to file.

·       Responsible actions taken to mitigate the failure: The IRS looks favorably on organizations that demonstrate they made an effort to prevent the failure or correct it as soon as it was discovered. Examples of mitigation include filing back returns, updating internal systems, or engaging outside experts

If the organization has a proven track record of filing its Form 990 or other required returns in the past, it can help make the case that the failure was an anomaly, not a pattern.

Challenges of the Reasonable Cause Statement

A frequent reason for non-filing is simply not knowing the rules. However, this is generally not enough by itself to establish reasonable cause. The IRS expects organizations to exercise “ordinary business care and prudence,” including staying informed about compliance obligations. That said, lack of knowledge may be considered in conjunction with other mitigating factors, particularly for new or very small organizations.

Conclusion

Maintaining tax-exempt status is not just a regulatory requirement—it is essential for nonprofits to survive. Automatic revocation of tax-exempt status due to non-compliance with Form 990 filing requirements can be devastating for an organization, leading to significant financial and reputational harm.

By understanding the IRS thresholds for Form 990 filings, addressing common compliance pitfalls such as over-reliance on volunteers and poor record-keeping, and adopting preventative measures like professional support and reliable systems, nonprofits can create a strong foundation for long-term compliance and success.

Taking proactive steps today will help ensure your organization remains focused on what matters most: making a difference in the communities you serve.