IRS To Begin Revoking Tax-Exempt Status

GuideStar recently sent me this message about changes in nonprofit requirements. These were part of the Pension Protection Act of 2006.

On May 16, 2010, the IRS will begin revoking tax-exempt status from nonprofits that failed to file three consecutive annual returns (Form 990-N, 990-EZ, 990, or 990-PF).”

The law requires the IRS to revoke the federal tax exemption of any organization that has failed to file three consecutive annual returns. For exemptions to be reinstated organizations will be required to re-apply to the IRS for tax-exempt status, which will likely take several months and incur new fees.

GuideStar estimates that 350,000 to 400,000 nonprofits are in danger of losing tax-exemption status. Most are smaller nonprofits with gross revenues of $25,000 or less, previously not required to file an annual return. These nonprofits now must file Form 990-N.

GuideStar Warns That Grantees and Nonprofit Clients May Be in Danger of Losing Tax-Exempt Status
Hundreds of thousands of exempt nonprofits will lose federal tax exemptions beginning in May

“Once the IRS begins issuing revocation notices in 2011, the sector will change dramatically,” noted Bob Ottenhoff, president and CEO of GuideStar. “It will be important for grantmakers, businesses that provide nonprofit discounts, and others who need to verify nonprofit status to know which organizations are still exempt and which are not. As the IRS announces its procedures and as information on the revocations becomes available, we will incorporate them into GuideStar Charity Check, our due-diligence tool for verifying charitable status and researching supporting organizations.”

The IRS will begin revoking exemptions on May 16, 2010, but will wait until 2011 to send revocation notices.

The IRS is essentially giving delinquent nonprofits a six-month grace period in which to file their annual returns,” Ottenhoff explained. “We hope the organizations in danger of losing their exemptions will take advantage of this opportunity. Ultimately, the revocation process will benefit the nonprofit sector by weeding out defunct organizations and nonprofits that are not meeting their reporting responsibilities. In the short run, however, it will cause hardship for some organizations.”

For more information, read the complete April 28 news release.

Aaron J. Hill
Executive Director
Center for the Study of Family History


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