As the federal government is forced to reduce spending, community and faith-based organizations are increasingly filling the void.
Many Hoosiers depend on the vital services provided by local charities and other nonprofits, and we need to allow them to operate without Uncle Sam’s interference. Unfortunately, an Internal Revenue Service policy is having the opposite effect.
Under current federal law, charities and other nonprofits automatically lose their tax-exempt status if they do not file annual information returns – regardless of how much income the organization receives – for three consecutive years.
Originally intended to clear defunct organizations from the government’s books, this automatic revocation is punishing successful tax-exempt organizations that are unaware of the requirement. Because the IRS does not adequately notify charities as this deadline approaches, many nonprofits discover the problem only after their names appear on a list of organizations that have already lost their status, after it is too late to act.
Since 2010, 11,600 Hoosier charities and other nonprofit organizations have lost their tax-exempt status without adequate notification. Nationwide, more than 550,000 charities and other nonprofits have lost the status over the past four years.
If an organization loses its status, it must file for tax-exempt status again and wait for the IRS to process its application, which can take many months. This process causes uncertainty for charities, their donors and the people they serve. For most nonprofits that rely on charitable giving, the tax-exempt status is the difference between a donor making a contribution or going elsewhere.
According to the National Taxpayer Advocate, as of 2013, more than 50,000 organizations reapplied for exempt status after suffering through the automatic revocation. To date, the IRS has processed and reinstated the tax-exempt status of fewer than half. Only 472 Hoosier charities have been able to successfully navigate IRS procedures to restore their tax-exempt status.