Hundreds of thousands of exempt nonprofits will lose federal tax exemptions beginning in May
Release date: April 28, 2010; updated May 7, 2010
Washington, D.C., and Williamsburg, Va.—GuideStar, the leading source of nonprofit information, encourages grantmakers and businesses that work with exempt organizations to remind their grantees and clients that the first legally mandated revocations of tax-exempt status are imminent.
"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 Pension Protection Act of 2006 requires the IRS to revoke the federal tax exemption of any organization that has failed to file three consecutive annual returns (Form 990-N, 990-EZ, 990, or 990-PF). Nonprofits that wish to have their exemptions reinstated will be required to re-apply to the IRS for tax-exempt status, a process that can take several months.
[This paragraph has been revised based on clarification from the IRS. The filing date has been changed to May 17, 2010, and a statement about a grace period for filing removed.] The IRS will begin revoking exemptions on May 17, 2010, but will wait until 2011 to send revocation notices. "Ultimately, the revocation process will benefit the nonprofit sector by weeding out defunct organizations and nonprofits that are not meeting their reporting responsibilities," Ottenhoff explained. "In the short run, however, it will cause hardship for some organizations."
GuideStar estimates that 350,000 to 400,000 nonprofits are in danger of losing their exemptions. A large number of these organizations are smaller nonprofits that previously were not required to file an annual return because their gross revenues were $25,000 or less. These nonprofits now must file Form 990-N, which the IRS created in response to the Pension Protection Act.
GuideStar, www.guidestar.org, connects people and organizations with information on the programs and finances of more than 1.8 million IRS-recognized nonprofits. GuideStar serves a wide audience inside and outside the nonprofit sector, including individual donors, nonprofit leaders, grantmakers, government officials, academic researchers, and the media.
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