The consequence of losing your organization’s tax exemption will vary from organization to organization, and will depend on its tax classification, type of assets, operations, and a number of other factors. For an organization recognized as a 501(c)(3) by the IRS, here are some of the likely consequences:
- A donor to your organization cannot deduct a donation to your organization made after the date on which the exemption was lost.
- Your organization (if it is organized as a nonprofit corporation) will now have to file the return that a nonexempt corporation files from the date of revocation going forward. It will be subject to failure to file penalties if it does not do so.
- If your organization’s exemption was revoked due to failure to file annual informational returns (e.g., Form 990-EZ, Form 990), it will be liable for failure to file penalties on those returns. Note that if an organization whose gross receipts are less than $1,000,000 for its tax year files its Form 990 after the due date (including any extensions) the IRS will impose a penalty of $20 per day for each day the return is late. The maximum penalty is $10,000, or 5 percent of the organization’s gross receipts, whichever is less. The penalty increases to $100 per day, up to a maximum of $50,000, for an organization whose gross receipts exceed $1,000,000.
- The organization will likely not be eligible for grants from other charities, since most grantors want to know that the grant recipient is recognized as tax-exempt at the time of making the grant.
- The organization can lose other tax exemptions that are tied to federal tax-exempt status, such as exemptions from sales and real property tax.
- Potential donors and volunteers can lose confidence in the leadership of an organization that has its tax exemption revoked, leading to a loss of donations and assistance.