Note: The text below 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.
Last year, GuideStar warned, "Half a Million Nonprofits Could Lose Their Tax Exemptions." This year, the number is down to 350,000 or 400,000, but the rest of the message is the same: hundreds of thousands of nonprofits are scheduled to lose tax-exempt status because they failed to file annual returns with the IRS.
The Pension Protection Act of 2006 requires the IRS to revoke the federal tax exemption of any organization that is required to file an annual return (Form 990-N, 990-EZ, 990, or 990-PF) and has failed to do so for three consecutive years. Nonprofits that wish to have their exemptions reinstated will be required to re-apply to the IRS for tax-exempt status. This process can take several months.
The IRS will begin revoking exemptions on May 17, 2010, but will wait until 2011 to send revocation notices. (The May 17 deadline applies to exempt organizations whose fiscal year ends on December 31. For more information about Form 990 filing deadlines, see our FAQ.) "Ultimately, the revocation process will benefit the nonprofit sector by weeding out defunct organizations and nonprofits that are not meeting their reporting responsibilities," explained Bob Ottenhoff, president and CEO of GuideStar. "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.
The revocations will most likely affect grantmakers and businesses that work with exempt organizations in addition to the nonprofits that lose their exemptions. "Once the IRS begins issuing revocation notices in 2011, the sector will change dramatically," Ottenhoff explained. "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."
- IRS Web site, Automatic Revocation for Not Filing Annual Return or Notice
- IRS news release, Many Tax-Exempt Organizations Must File Form 990 by May 17 Deadline to Preserve Tax-Exempt Status with IRS
Suzanne E. Coffman, May 2010
© 2010, GuideStar USA, Inc.
Suzanne Coffman is GuideStar’s director of communications and editor of the GuideStar Newsletter.