IRS Revokes Non-profit Status of Charities

by Darrin Mish, Tampa Tax Attorney
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Across the country more than 435,000 charity organizations have had their non-profit status revoked by the IRS for failing to file their tax returns for the last 3 consecutive years. This means the charity organizations now have to pay income tax and their donors would not be able to claim tax deductions on their contributions. The timing of the revocation may be problematic to the donors whose 2011 contributions may now be affected. Donors nationwide contributed about $298.4 billion into the coffers of charity organizations in 2011. Now some or all of these contributions may not be entitled to tax deductions.

On the side of the charities, they are now faced with paying taxes on the contributions and fees they collect and this may affect the many good causes they champion. According to Pete Thomas, chief of the charitable law section of the Ohio Attorney General’s Office , “When booster clubs raise money for their charitable purpose, the charity holds that money in trust. Many of these booster clubs have significant assets. They’re not always ending up where they’re supposed to.” Some charities continue to function after the revocation of their statuses but others have stopped.

If you are a regular donor to charities, you should find out if your charity of choice is registered as a non-profit organization by contacting the IRS or referring to the charity organization’s own website.

Prior to carrying out their action of revoking the statuses of the non-profits, the IRS did make efforts to contact the organizations concerned. “The IRS did make an effort to get the word out to charities about the requirement (to submit their latest 3 years tax returns). It also held off on issuing the revocations for a period of time giving charities a second chance, if you will,” said Susan Miniutti, chief financial officer and vice president of marketing for Charity Navigator, an online nonprofit evaluator.

Miniutti explained that the 3 year filing requirement was to weed out non-profits that have become defunct and for donors to see where charities are spending their money. Every non-profit is required to show its latest 3 years’ tax filings upon request by anyone. In the latest revocation exercise, about 40% of non-profits nationwide was affected, a total of 436,505 charity organizations.

Once their non-profit statuses have been revoked, the charity organizations have a right to apply for reinstatement upon filing their latest 3 years’ returns and fulfilling other requirements of non-profits. A reinstatement fee ranging from $100 to $850 is required. It is not clear how many of the charity organizations whose status has been revoked have applied for reinstatement.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Darrin Mish, Tampa Tax Attorney, The Law Offices of Darrin Mish, P.A. | Attorney Advertising

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