An easy way to reinstate nonprofit status will expire at the end of 2012.

You may recall that the IRS recently required nonprofits to file annually. This was a sea change from prior practice, where the smallest nonprofits were not required to file at all. Under the new rules, everyone has to file. To make it less burdensome, the smallest can file Form 990-N, also called the “postcard.” Nonprofits were alerted that three successive years of nonfiling would now result in revocation of nonprofit status. The IRS held true to its word and revoked the status of numerous nonprofits.

To recover tax-exempt status, the nonprofit must (again) file an application (Form 1023). A key issue here is that the nonprofit also has to present “reasonable cause” why it did not previously comply with IRS requirements.  The IRS can be harsh on what it considers to be “reasonable cause.” For example, let’s say that your CPA takes ill and, as a consequence, your tax returns are filed late. Many if not most people would consider that to constitute “reasonable cause” for late filing. The IRS disagrees. They argue that you could have hired another tax professional to prepare the return on time.

If you are small nonprofit (defined as gross receipts of $50,000 or less) the IRS will automatically deem you to have “reasonable cause.” You still have to file Form 1023, be careful to include certain prescribed language and attach a $100 check.

What is very, very important is that you do this by December 31, 2012. Starting in 2013 all nonprofits, whether large or small, must present reasonable cause when resubmitting for tax-exempt status.