Automatic Revocation of Nonprofits’ Tax-Exempt Status

Very soon the IRS will  publish the first Nonfiler Revocation List. Guidestar published an overview of what nonprofits, grantmakers, and donors need to know with regards to this revocation list and will answer questions during a free call on Thursday, May 26 at 12:00 PM CST. The below information includes some background and the main points from the Guidestar report.

For decades, once an organization received its determination from the IRS as tax exempt, that status was final—it remained in effect unless affirmatively revoked by the IRS. Although hundreds of thousands of nonprofits had to file an annual information return (Form 990, 990-EZ, or 990-PF) with the IRS, a significant number failed to do so, and the majority of exempt organizations were not required to file because they did not meet filing thresholds.

For many years, these non-reporting organizations remained listed as tax exempt, but it was unclear whether they were active and didn’t meet the reporting thresholds, met the reporting thresholds but neglected to file, or were in fact no longer operating (had merged, achieved the mission, or not, and/or stopped activities). When IRS attempts to contact non-reporting organizations went unanswered, the only recourse available to the IRS was to revoke those organizations’ tax-exempt status. The IRS was reluctant to take this step.

The situation changed with the passage of the Pension Protection Act in 2006. Among the law’s numerous provisions was a new requirement for almost all exempt organizations to file information with the IRS annually, starting in 2008 for activities from January 1, 2007, on. And the IRS is now required to revoke the tax exemption of any organization required to file that doesn’t do so for three consecutive years. Revocations will affect not only the organizations that lose their exemptions but also the donors and funders that support them and the audiences that rely on their services.

For more information about the following topics please review the full Guidestar report:

  • What Does “Revocation of Tax-Exempt Status” Mean?
  • What Happens if I Give to a Charity That Has Lost Its Exemption?
  • What Impact Will the Revocations Have on Grantmakers?
  • What Nonprofits Need to Do
  • What Grantmakers and Donors Need to Do

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