Reasonable Cause Letter for IRS Retroactive Reinstatement

If your organization is on the Automatic Revocation List, the reasonable cause letter is the single document that will decide whether you get your tax exemption back or you wake up to a three year tax bill. This is not paperwork theater. This is the legal story you are going to tell the IRS about why you failed to file Form 990, 990 EZ, or 990 N for three consecutive years, and the IRS treats it like evidence, not excuses.

You get one shot to persuade an auditor that the failures were non wilful, that you fixed the problem, and that the organization is worthy of retroactive relief. Do it badly and you pay. Do it well and you might get retroactive reinstatement.

The Purpose of the Reasonable Cause Letter

The IRS needs a reason to treat your organization differently from every other organization that failed to file. The reasonable cause letter is the narrative and the documentary package that proves your organization did not willfully ignore the filing requirements, and that reasonable steps were taken to comply or to cure the failure once discovered. It is not a confession of incompetence wrapped in a prayer. It is a forensic packet that combines facts, chronology, documentary proof, and remedial steps. The letter should make the IRS view your situation as an anomaly caused by specific, explainable circumstances rather than a pattern of neglect. If your story reads like a generic apology, it will fail. If it reads like a documented timeline backed by records, you improve your odds.

What the IRS Actually Wants to See in the Reasonable Cause Letter

The IRS is looking for three core elements: a credible explanation for the missed filings, contemporaneous or archival evidence that supports the explanation, and a clear plan to prevent recurrence. Credible explanation means specific, verifiable events, not vibes. A hospitalization of the treasurer with records, a vendor contracted to file who can be shown to have failed, a merger where records were transferred and access was lost, or a board transition that stranded credentials.

What to Include, and What Not to Include in the Reasonable Cause Letter

Include a clear timeline of events with dates, names, and roles. Include copies of the filed or queued 990s for the missing years, proof of delivery, communications showing attempts to comply or correct, and any external proof of disruption that explains the lapse. Label every exhibit and reference it in the text so a reviewer can flip between claim and proof without guessing.

You Need to Assign Responsibility, but Truth Matters

Yes, you must identify who or what broke the system. Vagueness is read as evasion. If a former treasurer failed to file, state that, attach the resignation email, and show the handoff failure. If a bookkeeping firm took fees and did not file, attach the engagement letter, invoices, and correspondence. If logins were lost during leadership turnover, show the turnover minutes and the credential reset path. If the failure was structural, say so and show the structure that failed. The IRS is not grading your scapegoating. It wants to see that you understand the failure precisely enough to prevent it, and that you have already installed the fix.

Evidence Is the Backbone, Not the Appendix

Every assertion needs a matching exhibit. If you say the first missed filing was discovered on April 14, show the email where the discovery was made and the ticket you opened with your accountant that same day. If you say the three missing returns have been filed, attach the e file confirmations or certified mail receipts. If you say the board adopted a new compliance policy, attach the signed minutes and the policy itself. The test is simple. Could a stranger reconstruct your story and verify it without calling you. If not, your packet is weak.

Remedial Actions Taken, Governance, and Bylaws Repair

This is the section most organizations skip, and it is why they lose. The IRS does not just want a story about the past. It wants proof that the engine has been rebuilt. Remedial action starts with governance, not software. If your bylaws were a free download you found on the internet, that is probably the root cause. Generic bylaws rarely assign filing responsibility, rarely require compliance reporting to the board, and almost never establish password custody, record retention, or interim authority when officers go dark.

The reasonable cause packet should include amended bylaws or a board resolution that hard wires compliance into your operating system. Name the officer responsible for annual information returns. Define a backup officer with access. Require a quarterly compliance report to the board that lists filing deadlines, status, and who holds the credentials. Mandate centralized credential storage in a shared vault with two board officers as custodians. Add a record retention schedule for financials and returns with specific custodians and locations. Require immediate board notification if a filing is missed or a vendor contract lapses.

Repair the Governance Structure

Next, restructure the board committees or create a compliance function if you have the bodies. Many small nonprofits run on goodwill with no internal checks. Create a Finance and Compliance committee, even if it is two people, and give it the explicit duty to oversee Form 990 preparation, review, and filing. Require that the full board receives the draft return before filing and records that review in the minutes. Adopt a calendar that shows statutory due dates, extension dates, and internal submission deadlines.

Load that calendar into a shared system that sends reminders to named people, not to a dead generic email. If your organization uses outsourced bookkeeping or a CPA, attach the signed engagement letter that covers annual information returns and specify who is responsible for transmit, who is responsible for final sign off, and how proofs of filing are stored. If you changed banks or software, attach screenshots of updated user lists and access controls.

Document Every Fix You've Made

Fix internal controls around money and documents. Require dual signatures or approvals for any change to contact information with the IRS, including change of address and change of responsible party on Form 8822 B. Require board ratification for the responsible party designation and store the IRS acknowledgement in the same vault as your determination letter. Document where the EIN letter lives, who has it, and how new officers are briefed. If you can show that the system failure has been engineered out of the organization, you make the reviewer's job easy. If you hand in another generic apology with a promise to do better, you are asking them to deny you.

Finally, produce proof that remedial actions have already happened. Do not promise that you will amend bylaws, amend them and attach the signed pages. Do not just promise a compliance calendar, attach it. Do not promise training, record that the board received training and attach the agenda. The IRS rewards verifiable fixes, not intentions.

Tone, Structure, and Length of the Reasonable Cause Letter

Write in plain English. Start with a one paragraph outcome statement that you seek retroactive reinstatement effective as of the revocation date. Then present Background, Events Leading To Nonfiling, Discovery And Corrective Actions, Remedial Governance Changes, and Exhibits. Keep the tone clinical. You are not appealing to sympathy. You are proving that nonfiling was non wilful and that it will not happen again because the system has been rebuilt with accountability.

Why You Only Get One Real Shot

Reinstatement packages are a referendum on your governance. A sloppy letter with thin exhibits and no structural fix tells the IRS to deny and move on. The longer you wait, the worse your documentary trail becomes, and the more likely it is that donors and states treat you as taxable for the entire gap. If your bylaws are a Frankenstein of free downloads, if your board minutes are blank, and if no one can explain who owned the 990 process, your odds collapse. This is exactly why organizations get professional help. Not to polish excuses, but to engineer a package that reads like a regulator wrote it.

Get Professional Help before You File

Stop improvising. Gather records, build a real timeline, and implement governance repairs before you write a single sentence. Amend the bylaws to assign compliance duties, adopt a credential policy, formalize board review of returns, and document a quarterly compliance report. Engage a CPA or qualified preparer in writing and file the missing returns with proof. Then assemble a reasonable cause packet that ties every claim to an exhibit and every fix to a signed policy or bylaw page.

If you want someone who has seen the IRS accept and reject these letters to review your packet before you roll the dice, contact me. I will tell you if your evidence is strong enough, what holes will get you denied, and what to fix before you submit. You get one swing at this. Make it count.