In 2006, Congress passed into law, the Pension Protection Act (PPA) that required most tax-exempt charities to provide an annual notice to the IRS providing various required information. According to the law, small tax-exempt organizations that received annual donations of $50,000.00 and less would start complying with the notice provision’s rules in 2007. Any organization that did not file the required information notice with the IRS for 3 consecutive years would be automatically revoked from its tax-exempt benefits. Following this law, in June 2011, the IRS released the first list of organizations that had been automatically revoked following failure to submit the required notice for 3 consecutive years. There were 275,000 organizations that were revoked from their tax-exempt statuses in this release.
List of Revoked Organizations
The list of organizations that was released by the IRS in June 2011 indicates the names of the charities, the Employer Identification Numbers (EIN) of these organizations, and the addresses of the organizations as held by the IRS in its database. It is the responsibility of donors to confirm that the organizations that they are donating to are not marked as “revoked” in the IRS’s books. This list of revoked charities is available at the IRS website and can be sorted by name or state for easier reference. The IRS has also indicated that they will be updating the list on a monthly basis as more organizations get out of compliance and are added to the list.
Efforts by the IRS to Ensure Compliance
Since the passing of the Pension charity organization Protection Act, the IRS has embarked on an awareness campaign to make qualifying charities conscious of the new requirements and to ensure that they comply with the rule. There have been various educational forums to make charities aware of the new rules. The IRS has also sent over 1 million letters to organizations that had not yet complied to have them comply before they are forced to be revoked. Furthermore, the IRS has also extended the time for automatic revocation since the 3 year non-compliance time frame for large charities should have ended in 2009. The time frame for small tax exempt charities that were to start reporting in 2007 should have lapsed in 2010.
Relief for Small Charities
The IRS is aware that some small charities could have been ignorant of the notice filing requirement and are therefore, providing a lenient way for these organization to come into compliance retroactively from time of revocation (so that they will not get into any donation complications). Tax-exempt organizations that receive donations of less than $50,000.00 can gain status backdated to the time of revocation if they apply to be reinstated and pay a reduced fee of $100.00 as opposed to the regular fee of $400.00 or $850.00.
Implication on Donors
For donors, funds or aid provided to these revoked organizations prior to the revocation are still deductible for tax purposes. However, going forward, a donor cannot make a donation to the revoked organizations and deduct such donations in their tax returns. Therefore, it is advisable for a donor to check with the IRS’s list of revoked organizations before making donations to avoid any inconveniences during tax time.
How to be Reinstated
The IRS believes that a vast majority of the charity organizations that have been revoked are defunct and therefore, there are no consequences to the revocation. However, organizations that have been revoked but that are still operational still have the opportunity of getting back into compliance. To do so, they will be required to complete a new application for registration and pay the relevant user fee. The payment of the fee also applies for organizations that were otherwise exempt prior to the revocation. However, to avoid the embarrassment of being listed on the revoked list, the IRS advises all tax-exempt organizations to ensure that they provide the relevant documentation to them in good time.
Rob L Daniel and partners of Limon Whitaker & Morgan, for years have helped businesses and individuals Nationwide, with their delinquent IRS & State tax problems. The firm is based in Los Angeles, California USA. www.limonwhitaker.com / Tel:888.321.6188