Under the Pension Protection Act of 2006, the IRS is required to declare that any nonprofit that has failed to file a Form 990 type tax return for three years in a row is no longer a tax-exempt entity. If a 501 (c)(3) has had its finances managed by another 501(c)(3) and the larger 501(c)(3) has filed a consolidated Form 990 for the past three years without mentioning that it is the fiscal agent for the smaller nonprofit, is the smaller nonprofit going to lose its tax-exempt status because it has not filed separately for three years?
Probably yes. The IRS is required to revoke the exempt status of any 501(c) exempt nonprofit organization, not just charities exempt under section 501(c)(3), if it has not filed a required tax return for three consecutive years. Those organizations with annual revenue normally under $50,000, and therefore exempt from filing Form 990 or 990-EZ, are now required to file the “electronic postcard” Form 990-N. (See Ready Reference Page: “Small Nonprofits Must File E-Postcard to Retain Exemption”) Since churches are not required to file a tax return they will not be affected by this new rule.
Unless your organization is included in a group exemption for the larger group, the IRS will probably send you a notice of automatic revocation after it has not received a return for three years (including the possible extension period). More than 584,000 organizations have lost their exempt status since 2008, the first year the IRS was required to revoke exempt status. The IRS has established a proedure to recover the lost exemption which can include retroactive reinstatement in some cases. (See Ready Reference Page: "IRS Explains How to Reinstate Automatically Revoked Exempt Status")