Tuesday, June 21, 2011

275,000 Charities Have Lost Tax Exempt Status

You may remember that charities, even small ones which previously had been exempt from IRS reporting, were required last year to file with the IRS. There was a “postcard’ filing (990N) for the smallest, but nonetheless everyone had to report.

What prompted this was a change in the tax law in 2006. The Pension Protection Act made it mandatory for most tax-exempts to file, irrespective of their gross receipts. This was a seismic change from prior law. If an organization failed to file for three consecutive years, then the PPA required it to lose its exempt status.

Counting off three years, many of these organizations had to file for the first time last year (2010). The IRS yesterday announced that approximately 275,000 organizations did not comply and have therefore automatically lost their exempt status. In addition, procedures have been announced for these organizations to regain their exempt status, in some cases by paying as little as a $100 fee.

Note that the revocation of status does not affect charitable deductions for amounts donated to these charities before 2011. However, deductions going forward will be disallowed because the organization names have been published - unless the charity reinstates its exempt status.

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