What Does “Revocation o Tax-Exempt Status” Mean?
May 17, 2010, was the frst fling deadline thatled to automatic revocations. At the end o theollowing month, the Urban Institute’s NationalCenter or Charitable Statistics (NCCS) estimatedthat almost 300,000 small nonprofts had not yetcompleted the 990-N and were in jeopardy. Fity-eight percent o the organizations were 501(c)(3)public charities. The remaining nonprofts at risk were tax exempt under other 501(c) subsections.The NCCS estimates that about 16,000 additionalorganizations are part o a group return; theseorganizations are not required to fle i theirnational ofces fle on their behal.In July 2010, more than 355,000 nonproftsappeared to be acing revocation. A new NCCSreport ound that more than 292,000 smallnonprofts still need to fle Form 990-N.
GuideStar’s analysis o the July 2010 BMFrevealed that more than 63,000 larger nonproftshave ailed to fle a Form 990, 990-EZ, or990-PF during the past three years.Organizations that registered with the IRSbetween 2008 and 2010 still have time to fle within the three years and are not yet subjectto revocation.
What Does “Revocation o Tax-ExemptStatus” Mean?
Revocation has a drastic and expensive impacton a nonproft. I it’s a charitable organization,it will no longer be able to accept tax-deductiblecontributions. Whatever type o exemptorganization it is, it will need to pay ederalincome taxes. It may also incur penalties or ailureto pay income taxes, to say nothing o the loss o the trust o its donors, members, and clients. Plus,most grantmakers (such as private oundationsand government entities) will only give grantsto charitable organizations, i.e., those that aretax exempt under section 501(c)(3). Obviously, well-run organizations should be meeting theirreporting obligations.So revocation is very serious—and i anorganization wants to regain tax-exempt status,there are orms to fll out, ees to pay, and usually some time to wait beore it is granted again.
What Happens i I Give to a CharityThat Has Lost Its Exemption?
As long as the charity has not received a revocationletter rom the IRS, your contribution will stillbe deductible. Once the charity receives theletter, however, donations to it will no longer bedeductible.The IRS is waiting until 2011 to start sendingrevocation letters. At that time, it will also posta Web page o nonprofts that have lost tax-exemptstatus because they ailed to fle with the IRS orthree consecutive years.
“Revocation has a drastic andexpensive impact on a nonprot. I it’s a charitable organization, it willno longer be able to accept tax-deductible contributions. Whatevertype o exempt organization it is, itwill need to pay ederal income taxes.It may also incur penalties or ailureto pay income taxes, to say nothingo the loss o the trust o its donors,members, and clients.”