Applications For Tax Exempt Status Drop Again

April 11, 2016       Mark Hrywna      

Tax-exempt applications to the Internal Revenue Service (IRS) dropped more than 13 percent last year after spiking in 2014 but some 94 percent of applications were approved for the second year in a row.

The figures are included in the 2015 IRS Data Book, which covers the fiscal year from October 2014 through September 2015, released this week. The number of applications closed is still considerably more than numbers from 2013 and 2012, when 53,192 and 60,980 were filed, respectively.

The IRS Tax-Exempt and Government Entities division typically receives around 60,000 applications annually, which has been rising since 2010. A backlog of applications in 2014 had numbered some 60,000, including some that lasted as long as nine months, and the IRS aimed to reduce that by the end of September 2014.

The total number of 501(c)(3) tax-exempt charitable organizations was up almost 6 percent, to 1.18 million. The overall number of tax-exempt organizations, nonexempt charitable trusts, and split-interest trusts was down by 1.2 percent to 1.7 million.

The drop in applications was across the board among all subsections of 501c3 organizations. Applications for 501(c)(3) charitable organizations was down almost 8 percent, but as usual made up the bulk of application, about 85 percent.

Other subsections, including 501(c)(3) social welfare organizations, 501(c)(6) business leagues, 501(c)(7) social and recreation clubs, and 501(c)(19) veterans’ organization also were down anywhere from 37 to 52 percent, but totaled less than 5,000 in the aggregate. In 2014, those four subsections saw in excess of 10,000 applications filed.

The number of tax-exempt guidance other regulatory activities dipped drastically last year. After several years of more than 1,000 activities recorded, including a high of 1,508 in 2014, just 366 were recorded last year.

The steepest drops were among technical activities, specifically requests for rulings and technical assistance. Requests for rulings ranged from 390 to 724 between 2011 and 2013 but dropped to 148 last year. Overall, technical activities, which had numbered at least 1,400 in the past two years, were just 355 in 2015.