Tax exemptions for U.S. 275,000 nonprofits revoked
From the New York Times
The Internal Revenue Service announced on June 8 that it had revoked the tax exemptions of 275,000 nonprofit organizations after they did not meet legal requirements to file annual tax forms. The action shrinks the nation’s growing nonprofit sector by roughly 17 percent, to about 1.3 million charities, trade associations, membership groups and labor unions.
Lois Lerner, director of the division of the Internal Revenue Service that oversees tax-exempt groups, said the agency believed most of the organizations on the list were defunct, though there was really no way to know because so many of them simply could not be reached.
“In many cases, we didn’t have a good address because the last one was many years old and they hadn’t had to file since then because they weren’t big enough,” Ms. Lerner said.
Leaders of several nonprofit groups predicted disruptions and nasty surprises as a result of the I.R.S. action, but most said it was necessary.
“In the long run, it is going to be a good thing because academics, researchers, policy makers and others will have more accurate data on the nonprofit sector,” said Tim Delaney, chief executive of the National Council of Nonprofits.
Has your nonprofit lost its tax-exempt status?
On June 8, the IRS released a list of 1,528 nonprofits in Hawaii that had their tax-exempt status automatically revoked. While it's unlikely any HANO member organizations are on the list, yours might be. Check the list to make sure.
Why does it matter? If an organization’s tax-exempt status has been revoked, it means:
- The nonprofit is no longer exempt from federal income tax and will have to pay corporate income tax on annual revenue.
- Any state tax exemption your nonprofit received that is dependent on federal tax-exempt status is also now revoked.
- The organization will not be listed in IRS Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986, which is a list of organizations eligible to receive tax-deductible charitable contributions.
- Finally, private foundations are unlikely to give a grant directly to nonprofits that are not tax-exempt because federal tax law imposes an excise tax on grants made to organizations that are not tax-exempt.
If a nonprofit is on the revocation list, click here for a tip sheet from the National Council of Nonprofits that details how automatic revocation affects a nonprofit and what must be done to have tax-exempt status reinstated.
The IRS has adopted a special reinstatement procedure for smaller nonprofits that lost their tax-exempt status through the automatic revocation process. Eligible evoked nonprofits with revenues of less than $25,000 (less than $50,000 in certain circumstances) will be required to pay a reduced application fee of $100 rather than the typical $400 or $850 fee.
If your nonprofit isn't on the list, but you know one that is, please help by passing this information along to them.
In all, 275,000 U.S. nonprofits have lost their tax exemptions for failure to file an annual return. GuideStar has incorporated the data from the June 8 list and a June 10 update into its database and products and will automatically update them when the IRS adds new organizations to the list each month. Click here for GuideStar’s Automatic Revocation FAQs and other information about the IRS status that GuideStar has incorporated into its nonprofit database.
