2011 Revocations Changing Nonprofit Sector

As previously reported, more than 300,000 tax-exempt organizations are set to lose their standing due to new requirements by the Internal Revenue Service (IRS). Any organization that has not filed their annual tax returns for three consecutive years will have their tax-exempt status revoked. Nonprofits are embracing this new regulation as a part of a priority of transparency within the sector. However, charities could have more difficulty proving their status as a tax-exempt organization with the new regulation.

Currently, to prove tax exempt status organizations simply present a copy of their IRS Letter of Determination. Although the IRS worked diligently to make all organizations aware of the new regulation, including sending out letters and initiating a marketing campaign, there will undoubtedly be those nonprofits that miss the call.

The fee to file for a new determination are $400 or $850, based on amount of revenue expected for the organization. However, these reapplications could have major workload repercussions for the IRS when coupled with the average 90,000 tax-exempt applications they already expect to receive. According to new regulations as included in the Pension Protection Act of 2006, failure to file annual tax information will result in tax penalties ranging from $10.000 or 5% of total receipts for organizations with total revenue of less than $1 million. For organizations with total revenue of more than $1 million, the penalty for one late return is $50,000.

The enforcement and strictness of these penalties is unsure, but just with reapplication filing fees for 100,000 organizations alone, the nonprofit sector will transfer $40 to $85 million to the US Treasury. As predicted by CEO of independent Sector, there very well would be an "unholy mess" from the fallout of revocations.