On June 9th, 2011, the Internal Revenue Service stated that about 275,000 businesses have lost their tax-exempt status because they didn’t file the required annual reports for three years in a row. They think that many of these businesses are no longer doing business, but stated that they will help the existing businesses apply for the restoration of their tax-exempt status.
In 2006, congress passed the Pension Protection Act, which requires many tax-exempt organizations to file a yearly information notice with the IRS. In 2007, the law set the same filing requirement for smaller businesses. The law revokes an organizations’ tax-exempt status if it doesn’t file the required notices for three years in a row.
The IRS has made an effort for many years to let organizations know about the changes in the law. They have provided many notices that include mailing out more than 1 million letters to businesses that hadn’t filed. And last year, the IRS published a list of organizations that were at risk of losing their tax-exempt status and allowed smaller businesses to have an another five months to file the required notices. Nearly 50,000 organizations did actually file during this extension period. The IRS thinks most of the small tax-exempt businesses are currently complying with the 2006 law.
During the last few years, the IRS has helped tax-exempt businesses learn about their filing requirement and has given them more time to file. IRS Commissioner, Doug Shulman, said, “We know there are some organizations, especially small ones, that don’t know about the new filing requirement. We are helping these organizations keep their tax-exempt status without threatening their operations.”
Additionally, the IRS issued a message about how businesses can apply for reinstatement of their tax-exempt status, including the retroactive ones. The IRS also gave relief for small tax-exempt organizations with yearly gross receipts of $50,000 or less for 2010. The relief lets those eligible organizations recover their tax-exempt status. The full details of this relief are available in Notice 2011-43, Notice 2011-44 and Revenue Procedure 2011-36.
If a business is on this list of organizations whose tax-exempt status has been revoked, it’s because the IRS records show that the organization didn’t file the required notices for 2007, 2008 and 2009.
A list of organizations whose tax-exempt status were revoked is available on the IRS website. It includes each business’s name, EIN and last known address. You may search by the state where the organization is located. Also, it includes the date of the revocation, as well as the date it was posted to the list. The IRS updates this list on a monthly basis and includes other organizations that lose their tax-exempt status.
The tax-exempt groups that file their required returns are not affected by the listing. The IRS believes that many of the recently revoked organizations are no longer in business and should be removed from the list.
This listing shouldn’t have any affect on those who have made contributions to revoked organizations. This is because donations made before the listing of an organization’s name stay tax-deductible. Organizations that are on the list that don’t get reinstatement aren’t eligible to get tax-deductible contributions, and any income may be taxable.
The organizations whose tax-exempt status has been revoked are listed in IRS Publication 78, the Cumulative List of Organizations. The updated version of Publication 78 will be published on the IRS website soon. Donors should not rely on the IRS to send a determination letter to the organizations before the date of revocation.
Existing organizations that want their tax-exempt status reinstated have to fill out an application and pay a user fee even if they were already required to file. More information on the reinstatement process, including retroactive reinstatement, can be found on the IRS website.
Daniel Stoica Accounting Professional