990PF Retroactive Reinstatement - Spidell

990PF Retroactive Reinstatement

Log in to Post

Message Board 990PF Retroactive Reinstatement

This topic contains 2 replies, has 2 voices, and was last updated by Maureen Luis 2 months, 3 weeks ago.

  • Author
    Posts
  • #176044
    Maureen Luis
    Participant

    I am assisting a 990PF with retroactively reinstating their 501c(3) status.  The previous tax preparer told them to just not file their taxes and the IRS would forget about them….?!?!  I have come across the issue that they could be subject to taxes for not spending a large portion of their yearly income and am wondering if I can file form 8940 with the delinquent tax returns asking for set-asides for the three years to have their income not taxed as they do have a project they have been saving for and will break ground on in late 2019 or beginning of 2020.  If this is not a valid plan can anyone advise me of other options that might be available?

  • #177770
    Ward Pynn
    Participant

    As a general rule, once a private foundation has lost its 501(c)(3) exemption, it is very difficult for it to gain retroactive reinstatement back to when they lost their exemption.  This is unlike the situation for public charities that are exempt under section 501(c )(3), lose their exemption for non-filing for three consecutive years and then seek reinstatement.  If they lost their exemption because they did something wrong (private benefit, inurement, etc.) then I don’t see the IRS granting exemption retroactive although they could grant exemption on a prospective basis.  Even if the IRS will forget about them for the non-filing years, the foundation has an obligation to file as a taxable non-profit.  If they are a corproation, then they have to file Form 1120 for the years in which they were not exempt.  Since most of their income is investment income, they will be a personal holding company and pay a steep tax.  On the other hand, that might be cheaper than paying the cumulative undistributed income excise taxes under section 4942.  As for set-asides they have to have informed the IRS in advance, generally, that they so qualify.  Sounds to me like they may not have sought that favorable approach on a timely basis.

    Ward Pynn

  • #177776
    Maureen Luis
    Participant

    Thanks Ward for the response.  I sent off all the paperwork this morning and hope that reasonable cause is enough to help them get their status reinstated….we shall see.