Three missed filings, and a charity's exemption is gone

Under a rule added by the Pension Protection Act of 2006, a tax-exempt organization that does not file its required annual return or notice for three consecutive years loses its exemption automatically. The revocation is effective as of the filing due date for the third missed year.

The rule reaches the smallest organizations. A group whose gross receipts are normally $50,000 or less still has to submit Form 990-N, a short electronic notice. Many of the organizations that lose exemption each year are small groups that did not know the notice existed.

The IRS publishes the names of organizations whose exemption has been automatically revoked, and anyone can check an organization's status with the Tax Exempt Organization Search tool on irs.gov.

Getting exemption back generally means filing a new Form 1023 or 1023-EZ and paying the user fee. Retroactive reinstatement is possible in some cases, but it requires showing reasonable cause for the missed filings.

The defense is administrative, not legal. Put the due date on a shared calendar, assign one person to file, and have a board member confirm it was done. The Playbook chapter on annual reporting and compliance covers which return applies.