Long Road Back For Exemption-Revoked Groups

July 1, 2011       Mark Hrywna      

Nonprofits that hope to regain the tax-exempt status that was revoked last month better hunker down for the long haul. The review process by the Internal Revenue Service (IRS) to re-apply for tax-exempt status could take an average six to ninth months, even with the expedited process, according to the National Council of Nonprofits (NCN).

“While great care has been taken by the IRS to cull this list, the consequences of a loss of tax exemption are severe to the organization, the people who support it, and the community that benefits from its work,” said Tim Delaney, president and CEO of the Washington, D.C.-based NCN. “It is important that every person whose life is touched by a nonprofit organization – and that is just about everyone – check the revocation list to make sure his or her favorite charitable nonprofit isn’t on the list.”

There were about 275,000 nonprofits that had tax-exemptions revoked by the IRS. The IRS released its initial list of revoked organizations on June 8, with plans to update it each month with additional nonprofits whose filing dates have come due. The 275,000 nonprofits represent more than 17 percent of the approximately 1.6 million organizations currently on file with the IRS.

Organizations with annual gross receipts of $50,000 or less for 2010 that were subject to the new “postcard” filing can regain tax-exempt status — retroactive to the date of revocation — and pay a reduced application fee of $100 rather than the typical $400 or $850 fee. If an organization’s exempt status is revoked, it’s no longer exempt from federal income tax and might be required to file federal income tax returns.

Organizations are on the revoked list because IRS records indicated a missed filing requirement for three consecutive years, ending in 2009 — either a Form 990, 990-EZ, 990-PF or 990-N (e-Postcard). The IRS believes that the vast majority of those revoked are no longer in existence and need to be removed from the tax-exempt listing, as required by the Pension Protection Act (PPA) of 2006.

The PPA required most exempt organizations (including associations, memberships organizations and charities), even the smallest ones, to file an annual information return or notice with the IRS for the first time in 2007.

The tax agency made a big push in the past few years to inform organizations that had not filed that they were in jeopardy of losing exempt status. The IRS mailed some 650,000 letters to charities in 2007, twice published a list of at-risk groups last year and also extended the filing period. There were about 341,000 nonprofits — more than 20 percent — classified as at-risk a year ago, and about 50,000 organizations filed during the extension period, according to the IRS.

“During the past several years, the IRS has gone the extra mile to help make tax-exempt groups aware of their legal filing requirement and allow them additional time to file,” said IRS Commissioner Doug Shulman. “Still, we realize there may be some legitimate organizations, especially very small ones, that were unaware of their new filing requirement. We are taking additional steps for these groups to maintain their tax-exempt status without jeopardizing their operations or harming their donors,” he said in a statement accompanying the release of the list.

The full list of revoked organizations is posted at www.irs.gov/autorevocationlist NPT