What IRS revocation of nonprofit tax-exempt status means
From the National Council of Nonprofits
Did you know that most nonprofits have to file an annual return to the IRS, and if they do not, their tax-exempt status will automatically be revoked?
Listen to this podcast from the IRS about the obligation of nonprofits to submit annual returns to the IRS and how revocation is automatic when a nonprofit does not file its annual returns for three consecutive years.
The effective date of revocation is "the original filing due date, without regard to extensions, of the third annual required return or notice that was not filed." (Source: IRS Exempt Organization Update, Feb. 24, 2011)
How will we know if our organization’s tax-exempt status has been revoked?
- Starting in 2011, the IRS will publish a “nonfiler revocation list” that will be updated monthly. (The National Council of Nonprofits and HANO will alert members when the IRS initially publishes the “nonfiler revocation list.” There will also be a link from the National Council’s website resource page on the revocation of tax-exempt status.)
- The nonfiler revocation list will be updated monthly by the IRS.
- Separate lists will be published for each state, the District of Columbia, and all other territories and countries. The list will provide each revoked organization's name, Employer Identification Number (EIN), subsection code, last known address, and effective date of the revocation.
- Guidestar’s analysis in February 2011 indicates that 56 percent of the nonprofits most likely to be affected are 501(c)(3) public charities, and the vast majority—82 percent—appear to have incomes of $25,000 or less.
What does it mean that a nonprofit’s tax-exempt status has been revoked?
- It means that the nonprofit is no longer exempt from federal income tax and will have to pay corporate income tax on annual revenue.
- The organization may also be subject to back taxes and penalties for failure to pay corporate income taxes as of the effective date of revocation.
- It may also mean that any state tax exemptions that the nonprofit received – such as exemptions for income tax, property tax, and sales/use tax – that are dependent on federal tax-exempt status, may also be revoked now.
- And it means that your 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 the official list of organizations eligible to receive tax-deductible charitable contributions.
- Additionally, this means that donors will not be able to receive a tax deduction for their gifts to the organization after the revocation date.
- Finally, most private foundations are unlikely to give a grant directly to nonprofits that are not tax-exempt because their guidelines normally require grantees to be recognized as tax-exempt public charities, since federal tax law imposes an excise tax on the foundation for grants made to organizations that are not tax-exempt.
What do nonprofits that lose their tax exemption do next? See the National Council’s website resource page on the revocation of tax-exempt status for more information.
