Nonprofit organizations, especially those recognized as tax-exempt 501(c)(3)’s by the IRS, depend heavily on donations and grants they receive from their benefactors, and when they lose their tax exemption, there are many serious consequences:

1. A donor cannot deduct a donation to the organization made after the date on which the exemption was revoked.
2. The organization (if it is organized as a nonprofit corporation) will have to file the return a nonexempt corporation files (Form1120) from the date of revocation forward, and it will be subject to penalties if it does not do so.
3. If the organization’s exemption was revoked due to failure to file annual informational returns (e.g., Form 990-EZ, Form 990), it will be liable for daily failure to file penalties on those returns, as well as interest.
4. 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.
5. The organization can lose other tax exemptions that are tied to federal tax-exempt status, such as exemptions from sales and real property tax.
6. Potential donors and volunteers can lose confidence in the leadership of an organization that has had its tax exemption revoked, leading to a loss of donations and assistance.

For more information please check the Taylor Legal, P.C website, and its Nonprofit Law section.