Prior to 2006, certain 501(c)(3) organizations that normally had gross revenues less than $25,000 were not required to file any tax returns at all. One problem that created is that the IRS had no way of knowing whether organizations that weren't filing returns (1) had gone out of business, (2) had gross revenues less than $25,000, or (3) were supposed to file returns but were failing to do so. So, in the Pension Protection Act of 2006, Congress amended Section 6033(i) to require all Section 501(c) organizations (except churches) to file at least a very abbreviated return (containing six items of information), and it amended Section 6033(j) to provide that any organization, whatever its size, that fails to file a return for three consecutive years would automatically lose its exemption.

Section 6033(j) doesn't give the IRS any discretion in the matter. Failure to file a return for three consecutive years means that tax-exempt status is automatically revoked, whether the IRS takes any formal action or not, and there is no procedure for appeal, either within the IRS or in the courts. Because this is such a draconian penalty, in 2009 and 2010, as the third full year following the 2006 Act began to run out, the IRS was very aggressive (and creative, at least for such a bureaucracy) in trying to get the word out to the nonprofit community, including using podcasts, YouTube videos, radio PSAs, and so on, encouraging them to file returns to avoid losing tax-exemption. It even posted a list of all the organizations that had failed to file for three consecutive years and then allowed them a further grace period to file the necessary returns to avoid revocation. There were something like 400,000 - 500,000 organizations on that list, and probably 90 percent of them did nothing and ended up having their exemption revoked.

Since then, the IRS has announced procedures for getting tax-exempt status reinstated, but that requires filing a new exemption application. Some 50,000 or so organizations that did lose their tax-exempt status have reapplied in the past several years, and that extraordinary, additional workload on the Cincinnati office that processes exemption applications is one reasons why it now seems to take the IRS forever to rule on new exemption applications and is part, but not the only reason for the highly publicized delay in processing Tea Party applications.