Following is the text from IRS Notice 2011-44 regarding obtaining retroactive reinstatement of tax-exempt status by showing that there was reasonable cause for late filing. My penalty relief manual e-book explains in detail how to make a reasonable cause argument and shows how to actually implement the following IRS guidelines for the best chance of success.

Get my Penalty Relief Manual to learn how to craft an effective reasonable cause argument to have your organization's tax-exempt status retroactively reinstated.

SECTION 1. PURPOSE

This notice provides guidance with respect to applying for reinstatement of

tax-exempt status and requesting retroactive reinstatement under sections

6033(j)(2) and (3) of the Internal Revenue Code (“Code”) for an organization that

has had its tax-exempt status automatically revoked under section 6033(j)(1) of

the Code. The Treasury Department (“Treasury”) and the Internal Revenue

Service (“IRS”) intend to issue regulations under section 6033(j) that will

prescribe rules relating to the application for reinstatement of tax-exempt status

under section 6033(j)(2) and the request for retroactive reinstatement under

section 6033(j)(3). To assist in the drafting of these regulations, Treasury and

the IRS solicit comments on the issues addressed in this notice.

In this Bulletin, the IRS has also published Notice 2011-43, which provides

transitional relief for certain small organizations (those that normally have annual

gross receipts of not more than $50,000 in their most recently completed taxable

year) that have lost their tax-exempt status because they failed to file an annual

electronic notice for taxable years beginning in 2007, 2008, and 2009. Notice

2011-43 sets forth the criteria for qualifying for the transitional relief and

instructions on how qualifying organizations can apply for reinstatement of

tax-exempt status retroactive to the date such status was automatically revoked.

SECTION 2. BACKGROUND

In general, section 6033(a)(1) requires an organization exempt from taxation

under section 501(a) to file an annual information return, such as a Form 990,

Return of Organization Exempt from Income Tax, a Form 990-EZ, Short Form

Return of Organization Exempt from Income Tax, or a Form 990-PF, Return of

Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as

a Private Foundation. Several categories of tax-exempt organizations, including

most organizations (other than private foundations or section 509(a)(3)

supporting organizations) whose annual gross receipts are normally not more

than $50,000 ($25,000 for taxable years beginning before January 1, 2010), are

not required to file an annual information return. See I.R.C. § 6033(a)(3); Rev.

Proc. 2011-15, 2011-3 I.R.B. 322.

The Pension Protection Act of 2006, Pub. L. No.109-280, 120 Stat. 780, §

1223 (2006) (“PPA”), added sections 6033(i) and (j) to the Code, both of which

became effective for taxable years beginning after 2006. Section 6033(i) added

an annual notification requirement for tax-exempt organizations that, pursuant to

section 6033(a)(3)(A)(ii) or (a)(3)(B), are not required to file an annual information

return under section 6033(a)(1) because their gross receipts fall below certain

thresholds. An organization satisfies the annual notification requirement under

section 6033(i) by filing an annual electronic notice, also known as a Form 990-N

e-Postcard. The annual notification requirement is also deemed satisfied if an

organization files a complete Form 990 or Form 990-EZ. See Treas. Reg. §

1.6033-6(c)(4).

Section 6033(j)(1) automatically revokes the tax-exempt status of any

organization described in section 6033(a)(1) that fails to file a required annual

return for three consecutive years or any organization described in section

6033(i) that fails to file an annual return or notice for three consecutive years.

Revocation under section 6033(j)(1) is effective on and after the date set by the

Secretary for the filing of the third annual return or notice.

Section 6033(j)(1) also requires the Secretary to publish and maintain a list of

all organizations that have had their tax-exempt statuses revoked under section

6033(j)(1) (“revocation list”). The IRS is publishing such a revocation list on the

IRS website (http://www.irs.gov), which it will update monthly. The IRS is also

mailing a letter to the last known address of each organization on the revocation

list to notify the organization that its tax-exempt status has been revoked under

section 6033(j)(1) (“IRS revocation letter”).

Section 7428(b)(4), as added by the PPA, provides that an organization may

not bring a declaratory judgment action challenging automatic revocation under

section 6033(j)(1).

Section 6033(j)(2) provides that any organization that has had its tax-exempt

status automatically revoked under section 6033(j)(1) must apply with the IRS in

order to obtain reinstatement of its tax-exempt status, regardless of whether the

organization was originally required to apply for recognition of its tax exemption.

If the application for reinstatement of tax-exempt status is approved, the effective

date of the organization’s reinstated tax-exempt status generally will be the date

the organization filed its application for reinstatement. However, section

6033(j)(3) provides that if, upon application for reinstatement, an organization

“can show to the satisfaction of the Secretary evidence of reasonable cause for

the failure described in [section 6033(j)(1)], the organization’s exempt status

may, in the discretion of the Secretary, be reinstated effective from the date of

the revocation.”

SECTION 3. EFFECTIVE DATE OF AUTOMATIC REVOCATION

For taxable years beginning after December 31, 2006, the tax-exempt status

of any organization that fails to file an annual information return required under

section 6033(a)(1) or an electronic notice required under section 6033(i) for three

consecutive years is automatically revoked pursuant to section 6033(j)(1) on and

after the date set by regulation for the filing of the third annual return or notice,

without regard to any extension of time for filing. Sections 1.6033-2(e) and

1.6033-6(f) of the Treasury Regulations generally require annual returns and

notices, respectively, to be filed on or before the 15th day of the fifth month

following the close of the period for which the return or notice is required to be

filed. When the filing deadline falls on a Saturday, Sunday, or legal holiday the

deadline may be timely satisfied if the filing is made on the next business day

that is not a Saturday, Sunday, or a legal holiday. See I.R.C. § 7503. Thus, for

example, in the case of an organization reporting on a calendar-year basis that

did not file a required annual return or notice for 2007, 2008, or 2009, the

revocation under section 6033(j)(1) would be effective as of May 17, 2010, given

that May 15, 2010 fell on a Saturday.

SECTION 4. APPLICATION FOR REINSTATEMENT OF TAX-EXEMPT

STATUS

An organization seeking reinstatement of its tax-exempt status under section

6033(j)(2) must apply using the same forms that are filed by all other applicants

for tax exemption. Thus, an organization seeking reinstatement of its tax-exempt

status under section 501(c)(3) must submit Form 1023, Application for

Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.

Most other organizations seeking reinstatement of tax-exempt status must submit

Form 1024, Application for Recognition of Exemption Under Section 501(a). Any

organization that seeks reinstatement of its tax-exempt status must submit the

appropriate application regardless of whether the organization was originally

required to apply with the IRS for recognition of tax exemption. For example, if

the tax-exempt status of a subordinate organization included in a group

exemption letter is automatically revoked under section 6033(j)(1), the

subordinate organization must submit an application for reinstatement of its taxexempt

status on its own behalf. In addition, all organizations seeking

reinstatement of tax-exempt status must pay the appropriate user fee. See Rev.

Proc. 2011-8, 2011-1 I.R.B. 237, section 6.07 or its successor. (Small taxexempt

organizations described in Notice 2011-43 are eligible for a reduced user

fee described in Rev. Proc. 2011-36, this Bulletin.)

To facilitate processing of applications for reinstatement of tax-exempt status,

organizations should write “automatically revoked” on the top of the application

form and on the envelope. For information on where to mail the application for

reinstatement of tax-exempt status, see the Instructions for Form 1023 or Form

1024 (whichever is applicable).

SECTION 5. RETROACTIVE REINSTATEMENT

.01 Request for Retroactive Reinstatement

An organization (other than a small organization that qualifies for the

transitional relief described in Notice 2011-43) seeking to have its tax-exempt

status reinstated effective from the date of automatic revocation pursuant to

section 6033(j)(3) must submit a request for retroactive reinstatement with its

application for reinstatement of tax-exempt status. The request for retroactive

reinstatement must include the following:

(1) A written statement setting forth all of the facts that support its claim for

reasonable cause for failing to file a required return or notice in each of the three

consecutive years and over the entire consecutive three-year period, including a

detailed description of all the facts and circumstances that led to each failure and

the continuous failure, the discovery of the failures, and the steps taken to avoid

or mitigate the failures;

(2) A written statement describing the safeguards the organization has put

into place to ensure that the organization will not fail to file returns or notices in

the future;

(3) Evidence to substantiate all material aspects of the written statements

described in paragraphs (1) and (2) of this section;

(4) Properly completed and executed paper annual information returns

(Forms 990, Forms 990-EZ, or Forms 990-PF, whichever is applicable) for all

taxable years during and after the consecutive three-year period that the

organization was required, but failed, to file an annual information return;

(5) Properly completed and executed Forms 990-EZ for all taxable years

during and after the consecutive three-year period that the organization was

eligible to file a Form 990-N e-Postcard but failed to file either a Form 990-N e-

Postcard or an annual information return; and

(6) An original declaration, dated and signed under penalties of perjury by

an officer, director, trustee, or other official who is authorized to sign for the

organization in the following form:

I, ____________ (Name), ______________ (Title) declare,

under penalties of perjury, that I am authorized to sign this request

for retroactive reinstatement on behalf of [Name of Organization],

and I further declare that I have examined this request for

retroactive reinstatement, including the written explanation of all the

facts and information pertaining to the claim for reasonable cause

and the evidence to substantiate the claim for reasonable cause,

and to the best of my knowledge and belief, this request is true,

correct, and complete.

.02 Reasonable Cause Standard

Because the failure described in section 6033(j)(1) involves a repeated and

continuous failure to file annual returns or notices for a consecutive three-year

period, an organization seeking retroactive reinstatement under section

6033(j)(3) must demonstrate that it had reasonable cause for failing to file a

return or notice not only for each of the three years but also over the entire three8

year period. Thus, for example, showing reasonable cause for failing to file a

required return or notice for the first of the three years by the date it was due

would be insufficient; an organization also would have to show reasonable cause

for not filing that return or notice at any later time during the three-year period

and for not filing required returns or notices for the second and third years of the

three-year period.

In order to establish reasonable cause under section 6033(j)(3), an

organization requesting retroactive reinstatement must provide evidence that it

exercised ordinary business care and prudence in determining and attempting to

comply with its reporting requirements under section 6033 for each of the three

years and over the entire three-year period, but was nevertheless unable to file

the required returns or notices for three consecutive years. In determining

whether the organization establishes reasonable cause, the IRS will take into

account all pertinent facts and circumstances, including, but not limited to, the

following factors that weigh in favor of finding reasonable cause (with no single

factor being either necessary or determinative):

(1) The organization’s failure was due to its reasonable, good faith reliance

on erroneous written information from the IRS, stating that the organization was

not required to file a return or notice under section 6033, provided the IRS was

made aware of all relevant facts.

(2) The failure to file the returns or notices arose from events beyond the

organization’s control (“impediment”) that made it impossible for the organization

to file returns or notices for each of the three years at issue and over the entire

three-year period.

(3) The organization acted in a responsible manner by undertaking

significant steps to avoid or mitigate the failure to file the required returns or

notices and to prevent similar failures in the future, including, but not limited to--

(a) Attempting to prevent an impediment or a failure, if it was foreseeable;

(b) Acting as promptly as possible to remove an impediment or the cause

of the reporting failure, once the failure was discovered; and

(c) After the failure was discovered, implementing sufficient safeguards to

ensure future compliance with the reporting requirements under section 6033.

(4) Aside from the three consecutive years in which the organization failed to

file returns or notices, the organization has an established history of complying

with its reporting requirements (if any) under section 6033 and/or any other

applicable reporting or other requirements under the Code.

In determining whether reasonable cause exists, the IRS will only consider a

factor on the above list or any other factor (such as the fact that substantially all

of an organization’s activities are performed by volunteers) if the organization

shows to the satisfaction of the IRS evidence to substantiate the factor.

.03 Timing of Request for Retroactive Reinstatement

Except for small organizations that qualify for the transitional relief described

in Notice 2011-43, the IRS will, in exercising the discretion granted under section

6033(j)(3), consider an organization’s request for retroactive reinstatement only if

it submits such a request, together with a properly completed and executed

application for reinstatement of its tax-exempt status, within 15 months of the

later of the date of the IRS revocation letter or the date on which the IRS posts

the name of the organization on the revocation list available on the IRS website

(or otherwise provides notice of the revocation to the public).

SECTION 6. SUBSEQUENT AUTOMATIC REVOCATIONS

An organization whose tax-exempt status has been automatically revoked and

reinstated may have its tax-exempt status automatically revoked a second time

under section 6033(j)(1) only if it fails to file returns or notices for another three

consecutive taxable years, beginning with the taxable year the IRS approves its

application for reinstatement of tax-exempt status. For example, if an

organization reporting on a calendar year basis has its tax-exempt status

automatically revoked for failing to file required returns or notices for 2007, 2008,

and 2009 and receives a determination letter recognizing the reinstatement of its

tax-exempt status dated September 1, 2011, the organization’s tax-exempt

status will not be automatically revoked a second time for failing to timely file a

return or notice for 2008, 2009, and 2010. However, the organization’s taxexempt

status will be automatically revoked a second time if the organization fails

to timely file a return or notice for 2011, 2012, and 2013.

SECTION 7. PAPERWORK REDUCTION ACT

The collection of information contained in this notice has been submitted to

the Office of Management and Budget in accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3507(d)) and approved under OMB control

number 1545-2206.

The collection of information in this notice is in section 5. In order to have its

tax-exempt status retroactively reinstated under section 6033(j)(3), an

organization must show to the satisfaction of the IRS evidence that it exercised

ordinary business care and prudence in determining and attempting to comply

with its reporting obligations under section 6033 for each of the three years (and

over the entire three-year period) that it failed to meet such requirements. This

information is necessary for inspection by the IRS in determining whether

reasonable cause exists. The collection of information is required to meet the

reasonable cause standard under section 6033(j)(3). The likely respondents

providing the information required in section 5 of this notice are tax-exempt

organizations that have had their tax-exempt statuses automatically revoked

under section 6033(j)(1), have applied for reinstatement of such status under

section 6033(j)(2), and are seeking that such reinstatement be made retroactive

to the date of revocation under section 6033(j)(3).

Estimated total annual reporting burden: 2,917 hours.

Estimated average annual burden per respondent: 1 hour.

Estimated number of respondents over the next three years: 8,750.

Additional collection of information is proposed in section 4 of the notice,

which will be reported and approved through Forms 1023 and 1024 (OMB

approval numbers 1545-0056 and 1545-0057, respectively).

An agency may not conduct or sponsor, and a person is not required to

respond to, a collection of information unless it displays a valid control number

assigned by the Office of Management and Budget.

SECTION 8. REQUEST FOR COMMENTS

Treasury and the IRS request comments regarding this notice and

suggestions for future guidance regarding the provisions of section 6033(j).

Comments should be submitted on or before August 19, 2011. Please include

“Notice 2011-44” on the cover page. Comments should be sent to the following

address:

Internal Revenue Service

CC:PA:LPD:PR (Notice 2011-44), Room 5203

P.O. Box 7604

Ben Franklin Station

Washington, D.C. 20224.

Submissions may be hand delivered Monday through Friday between the

hours of 8 a.m. and 4 p.m. to:

Internal Revenue Service

Courier’s Desk,

1111 Constitution Avenue, N.W.

Washington, D.C. 20224

Attn: CC:PA:LPD:PR (Notice 2011-44)

Submissions may also be sent electronically to the following e-mail address:

Notice.Comments@irscounsel.treas.gov.

Please include “Notice 2011-44” in the subject line.

All comments will be available for public inspection and copying.

SECTION 9. DRAFTING INFORMATION

The principal authors of this notice are Monice Rosenbaum and Preston

Quesenberry of the Office of Division Counsel/Associate Chief Counsel (Tax

Exempt and Government Entities) and Matthew Giuliano of the Tax Exempt and

Government Entities Division of the IRS. However, other personnel from the IRS

and Treasury Department participated in developing this notice. For further

information regarding this notice, contact Ms. Rosenbaum at (202) 622-6070, Mr.

Quesenberry at (202) 622-1124, or Mr. Giuliano at (202) 283-8917 (not toll-free

numbers).

You can download Notice 2011-44 as a pdf file directly from the IRS web site.