Senate Bill Would Require Revocation Notice

February 23, 2015       Patrick Sullivan      

Legislation introduced in the U.S. Senate would require the Internal Revenue Service (IRS) to give charities notice that they will lose their exempt status.

Sens. Dan Coats (R-Ind.) and Ben Cardin (D-Md.) introduced S. 400, “Notice for Organizations That Include Charities is Essential (NOTICE) Act” on Feb. 6. The bill would require that the IRS notify a charity within 300 days that it has not completed required federal filings in two years and will have its tax-exempt status revoked. The bill also provides for reinstatement without application for charities that can prove they had not received a notice. The provisions would be retroactive to Dec. 31, 2014.

“As the federal government is forced to reduce spending, community and faith-based organizations are increasingly filling the void,” said Coats via a statement. “We need to make sure we allow these organizations to grow without interference from Uncle Sam. Because the IRS does not adequately notify charities as this deadline approaches, many nonprofits discover the problem only after their names appear on a list of organizations that have already lost their status, after it is too late to act. Some never realize it at all,” he said.

Currently, an organization can lose its tax-exempt status after not filing for three consecutive years. Some 584,000 organizations have lost their statuses, with less than 10 percent being reinstated.

The National Council of Nonprofits broadly supports the bill, according to spokesman Rick Cohen. “If you can prevent your status from being revoked, it’s much easier than getting it reinstated,” he said. But, Cohen sees two problems that the bill does not address.

The first is that the addresses that the IRS has on file for many of these nonprofits are out of date. The Pension Protection Act of 2006 required a Form 990 to be filed for many small organizations that had never had to file beyond an initial application for exempt status. Since then, “Maybe organizations moved, or it’s volunteer led with no physical office so the contact was the board chair from 20 years ago,” said Cohen. When the notice of revocation “is going to the wrong addresses it doesn’t solve the issue,” he said.

The root of the problem is one far beyond the scope of this bill. “The biggest issue is not notification about potential revocation, it’s Congress’s constant underfunding of the IRS,” he said. “The IRS is needed to perform an oversight role, process exempt status applications and Form 990s as they come in. (Congress) has cut and cut and cut, and what we need is Congress to step up and give the IRS the resources they need to do the job they have.”