Home » Law and Legal Articles » IRS Revokes Federal Tax Exemption for More Than 21,000 Texas Nonprofits
IRS Revokes Federal Tax Exemption for More Than 21,000 Texas Nonprofits
The Internal Revenue Service revoked tax-exempt status for a large number of non-profit organizations throughout the nation. The IRS revoked their tax-exempt status after the charitable organizations failed to file their third consecutive annual information tax returns or notices.
November 05, 2011 /Law and Legal PR News/ -- IRS Revokes Federal Tax Exemption for More Than 21,000 Texas Nonprofits
Despite a major effort to warn the nonprofit community, the Internal Revenue Service had no choice in June but to automatically revoke tax-exempt status for about 275,000 not-for-profit organizations nationally. Of these, 21,468 were Texas nonprofits. Only California had a higher number.
According to Star-Telegram.com, significant numbers of Texas fraternal-organization divisions like American Legion posts, Knights of Columbus councils and League of United Latin American Citizens councils were affected, among others.
A 2006 federal law requires automatic revocation of tax-exempt standing for charitable organizations as of the dates they fail to file their third consecutive annual informational tax returns or notices. (Not all nonprofits have this filing requirement, notably most religious organizations.) The IRS conducted an intense educational and mailing campaign hoping to raise awareness of the new requirements and avoid this kind of mass revocation. The agency does, however, believe that most of the nonprofits on the list have ceased operations.
The IRS released the first list of nonprofits affected by the new law on its website on June 8 and will post monthly updates.
GlobeNewswire reported on a review of the IRS list by GuideStar, a nonprofit that compiles, ironically, data about other nonprofits. Amazingly, about 17 percent of all nonprofits nationally lost their favorable tax treatment in June. The largest nonprofit on the list was Credit Unions Chartered in the State of Pennsylvania with over $400 million in tax-exempt 2006 revenue. However, about three-quarters of the affected organizations take in less than $25,000 annually.
The loss of tax-exempt status is alarming for a not-for-profit organization that may suddenly be required to pay federal taxes. Donors to the organization will no longer be allowed to deduct from their taxes amounts given and intended as charitable donations. Affected nonprofits should also find out if the loss of federal status negatively impacts state tax treatment.
The law provides for no appeal from the automatic revocation, but organizations believing they were revoked in error should gather their documentation and contact the IRS. Nonprofits that were automatically revoked can file for reinstatement, possibly retroactively back to their revocation dates. Smaller organizations are being given favorable treatment like reduced fees.
Affected nonprofits might also want to consider the impact on relations with donors and what outreach might be helpful.
Any nonprofit finding itself on the revocation list should consult as soon as possible with an attorney with a history of setting up and advising nonprofits. A lawyer can help an organization work with the IRS to reinstate the tax exemption, retroactively if possible, and advise the nonprofit about future tax filing requirements.
Article provided by Leslie Wm. Adams & Associates
Visit us at www.lesliewmadams.com
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