Some Charities Lose Tax Exemption Status for Non-Compliance

June 27, 2011 by  Filed under: Taxes 

In 2006, Congress passed the Pension Protection Act which included among other things, rules that would govern the status of tax-exempt organizations. According to the law, all tax-exempt organizations needed to file an annual report to the IRS. The law also dictated that any tax-exempt organization that did not file this report for 3 consecutive years would automatically be removed from its tax-exempt status. In adherence to this rule, on June 8 2011, the IRS released a list of the tax-exempt organizations that had failed to file the required report for three years and were therefore, automatically removed from their tax-exempt status. The list can be found on the IRS website and can be filtered by name, Employer Identification Number (EIN), and state.

In releasing the list, the Commissioner of the IRS, Doug Shulman, said that the IRS had gone to great lengths to ensure that all charities were aware of this rule and complied accordingly. He was therefore, confident that a majority of the names released in the list of revoked organizations were actually those that had closed down over the period. However, he said that the IRS was aware that some of the organizations could still be operational.

For such organizations, the IRS has provided an opportunity to re-apply for the restoration of their status. The IRS is especially aware that some of the smaller charities could still be unaware of the new rules. It is therefore, providing an opportunity for such charities that receive donations below $50,000.00 to get into retroactive compliance, backdated to June 8 (when the revocation became effective) if they reapply to be reinstated and provide the necessary documentation. They will even pay a much reduced application fee of $100.00, as opposed to $400.00. For the larger charity organizations, they will need to wait until the IRS approves their tax status before they can be tax-exempt again. They will also not enjoy the retroactive reinstatement, as is the case with the smaller charities.

For donors, any donations made prior to June 8 will not be affected in any way by the revocation, even for organizations on the list. However, going forward, any organization that remains on the list and fails to get reinstated will not be tax-exempt and thus, donors to these organizations will not be able to have their donations tax-deductible until the organizations get reinstated. Therefore, it is the responsibility of the donors to confirm that an organization is not on the revoked list before making a donation if they want to claim tax deductions on their charitable contributions towards them.

Rob L Daniel and partners of Limon Whitaker & Morgan, for years have helped businesses and individuals Nationwide, with their delinquent IRS & State tax problems. The firm is based in Los Angeles, California USA. http://www.limonwhitaker.com / Tel:888.321.6188

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