The IRS has released the list of over 275,000 nonprofit organizations that have lost their tax-exempt status as a result of failing to file a tax return for the last three years. Many of these organizations are no longer in operation, but some are operating with volunteers that change frequently and have little experience with tax filing responsibilities.
The loss of exemption may not mean that the organization will have much income tax to pay since many small nonprofit organizations do not have much net income. However, without tax exemption, donors will not receive a charitable contribution deduction for money given to these organizations. This could significantly impact their ability to operate.
Although the IRS gave plenty of notice to organizations and made several attempts to directly contact organizations about their filing responsibilities, it still makes me sad that so many organizations are on the list. It is not inexpensive to file for exemption – currently the IRS fee alone is $800. This does not count professional time (accountants and lawyers) and the time for internal personnel to pull together this information needed to file for exemption.
The good news is that there is a limited window to apply for retroactive reinstatement of their tax-exempt status. Organizations with annual gross receipts of not more than $50,000 (meeting certain other restrictions) can submit a Form 1023 by December 31, 2012 and seek reinstatement of exempt status retroactive to the date exempt status was revoked. Thankfully, the IRS is requesting a reduced fee for this filing of only $100.
Larger organizations also have an opportunity to request retroactive reinstatement. These organizations will have to file a Form 1023, but they must show proof that they had a reasonable cause for failing to file the required returns. In addition, they must complete all tax returns that had not been filed. The request for retroactive reinstatement must be submitted within 15 months of the later of the date of the IRS revocation letter or the date on which the IRS posts the name of the organization on the IRS revocation list. There is no reduction in the fee ($800) to file the Form 1023 but the reinstatement will be retroactive.
I urge you to review the list on the IRS website and see if you recognize any organizations. If you do, make contact with the organization to let them know. Seems obvious, but I have first-hand experience with very thankful organizations that I called when the “in danger” list came out and who successfully avoided revocation. You could be the difference to a small volunteer-run community organization.