One-Quarter of Nonprofits May Lose Tax Exempt Status

As many as 400,000 nonprofit organizations may be weeks away from losing their tax exempt status.

The New York Times reports that on May 15, an estimated one-fifth to one-quarter of some 1.6 million charities, trade associations and membership groups will lose their tax exemptions, because of their failure to comply with a provision in the Pension Protection Act of 2006.

The legislation required all nonprofits to file tax forms the following year. Previously, only organizations with revenues of $25,000 or more had to file.

The Act also directed the IRS to revoke the tax exemptions of nonprofits that failed to file for three consecutive years.  Three years have now passed and the charities, associations and groups affected by this change and that have failed to file the required returns now risk losing their tax exempt status.

It appears that the I.R.S. would rather not revoke exemptions, as it has made a formidable effort to notify organizations at risk.  For example, in 2007, the IRS sent 665,000 letters to nonprofits that fell below the $25,000 threshold and those above that threshold that had not filed.  The IRS has stated that it may not proceed with the revocations until January, 2011 to give nonprofits a chance to become compliant.

If you have any questions about your nonprofit’s compliance, now is the time to speak with your attorney or accountant.