The title to this post asks a long question. Let’s break down what’s being asked here.
How Are Not-for-Profits Organized?
Most not-for-profits are organized as corporations. They file articles of incorporation with the secretary of state just like any other corporation.
In order to get tax-exempt status, the organization need to file paperwork with the IRS.
Reminder: “not-for-profit” is a concept of state law; “tax-exempt” is a tax concept.
Thus, it’s possible for an organization to be organized as a not-for-profit but NOT be tax-exempt. I explore that topic in this post.
Revocation of Corporate Charter
It’s possible for a corporation to have its corporate charter revoked.
For example, here in Iowa, corporation’s are required to file “biennial reports.” Every two years, the organization has to file a “report” which is a simple summary of the corporation’s name, address, other contact info, etc. It only takes a few minutes to do, but unfortunately many organizations (both for-profit and not-for-profit) don’t do it.
If the organization doesn’t file the biennial report, its corporate status can go into suspension or be revoked.
So the question is: if a tax-exempt not-for-profit loses its corporate status with the state, does that blow its tax-exempt status with the IRS as well?
If Corporate Status is Revoked, Is Tax-Exempt Status Also Revoked?
The answer appears to be no.
On this page of FAQs on the IRS website, the IRS says an organization that has its corporate status revoked does not need to file a new Form 1023 (or Form 1024).
But does that mean an organization doesn’t have to tell the IRS anything about its status being revoked? What if the organization has filed its annual 990s and otherwise complied with tax laws, and therefore maintained its tax-exempt status, but it loses it corporate charter?
Note the ambiguous language about what should be filed instead of a 1023 or 1024:
The organization must submit evidence from the state that its charter has been reinstated, indicating the effective date of reinstatement. In addition, the organization should provide evidence that it has complied with any filing requirement for annual returns during the period during which its corporate status was administratively suspended or dissolved.
The way I read this is: if a tax-exempt organization’s corporate status is revoked at the state level, the organization is supposed to tell the IRS.
I would imagine that at least 90% of the time, organizations don’t do this. (I have no proof of that other than my “gut feeling.”)
I’ve never dealt with that exact scenario. But I have dealt with organizations that, after filing their articles of incorporation and getting tax-exempt status with the IRS, never filed ANYTHING else with the state (no biennial reports) and never filed a 990 with the IRS, and thus the state revoked their corporate status AND the IRS revoked their tax-exempt status.
In that situation, the organization first jumped through the state hoops to get its corporate status back, and then we filed the paperwork with the IRS to get tax-exempt status back.
For this organization we had to file a Form 1024, and the re-instatement paperwork from the secretary of state was included as part of the 1024 filing.
Further Reading on a Similar Topic
This topic is similar to an issue I wrote about in this post, involving the filing of corporate tax returns when corporate status is revoked.
The question addressed there was, if corporate status is revoked, does the corporation become a sole proprietorship (or partnership) for federal tax purposes? The answer is no, the entity would continue to file corporate tax returns as long as it was continuing to behave like a corporation.