What the IRS’ Automatic Revocations Mean For You

In an extremely important development to the nonprofit sector, the IRS recently posted the initial IRS Nonfiler Revocation List on its website. The list names approximately 275,000 nonprofits that have lost their tax exemptions for failure to file an annual return, fundamentally changing the size and scope of the sector and finally giving us an accurate picture of the sector’s influence.

Our Vice President of Research, Chuck McLean, did an analysis of the list and found that the top 100 largest organizations previously reported revenue ranging from $4 million to just over $400 million. Details of the report can be found at http://www2.guidestar.org/rxa/news/articles/2011/for-whom-revocations-tolled.aspx, and available by request is the full list of the top 100 by revenue as well as the lists of the largest nonprofits that were revoked in each state and for each nonprofit focus area – just send a note to me at lnichols@guidestar.org.

Some of these nonprofits, as in the case of the Credit Unions Chartered in the State of Pennsylvania, ceased to exist and just hadn’t told the IRS. In other cases, it points out a real problem with internal processes. We at GuideStar think it’s high time that these problems were pointed out. As our president and CEO, Bob Ottenhoff, recently stated, “I have long advocated for transparency and accountability in the sector in my blog and elsewhere. We are happy the IRS is shining a light on the nonprofit sector and ferreting out the organizations that do not comply with the most basic of regulatory measures, even if they are large organizations.”

This also means, however, that the way you’ve been doing business may have to change. I’ve included some detailed help below, and please visit our Revocations Resource Center for more information.  

Nonprofits

• If your nonprofit is not on the list, you technically you don’t have to do anything. This a good time, however, to reach out to your donors, funders, and other constituents and assure them that you are in good standing with the IRS. You may also wish to suggest that your supporters consult the list to ensure that the other nonprofits they give to are still exempt.

• If your nonprofit is on the list, you must now must file a federal income tax return and pay federal income taxes. If you previously could accept tax-deductible contributions, you no longer can do so. If you wish to regain tax-exempt status, you must apply for it by filing the appropriate form with the IRS and paying the required fees. Your application will be reviewed with all other applications for exemption. Although you can request expedited processing, you will need to provide justification; automatic revocation of tax-exempt status does not of itself merit fast-tracking an application.

• We are working to incorporate this revocation data into GuideStar Charity Check and we will automatically add new revocation data to it when the IRS updates the list each month. If you are a foundation without a subscription to GuideStar Charity Check—which provides one-stop shopping for due diligence that protects your organization from excise taxes—before making a payout, you will need to confirm that a grantee or gift recipient does not appear in the list. Failure to do—and document—this research may cause the IRS to disallow a charitable distribution, making your organization liable for excise taxes.

Philanthropic Donors

• If you wish to deduct a charitable gift on your taxes, you will need to confirm that the nonprofit receiving it is still tax exempt before you make the contribution. Otherwise, the IRS may disallow the deduction, and you may be required to pay a penalty. You should check with the nonprofit’s public report page on http://www2.guidestar.org/ to confirm its status.

 We want to continue to be a resource for you, so please join us for a free webinar on June 28, at 1 pm ET, for a session titled “Automatic Revocations, the Sector, You, and GuideStar.” My colleague will be tweeting during the event using the hashtag #revocations. We hope to see you there!