Senate Bill Aims to Address Backlog of Tax-Exempt Applications

Groups whose applications are not processed within nine months would be granted the right to take the Internal Revenue Service to Tax Court.

Organizations tired of waiting to hear back from the Internal Revenue Service about the status of their tax-exempt application could see legal avenues open up that would allow them to go after the agency in court.

This legislation will provide a much-needed avenue of relief for nonprofits whose applications for tax-exempt status are languishing at the IRS.

A new bill introduced last week by Sen. Dan Coats (R-IN) would allow groups seeking 501(c)(4) tax-exempt status to take the IRS to Tax Court if their application is not processed within nine months.

Currently, groups seeking status as a 501(c)(3) charity or foundation can ask the Tax Court for tax-exempt status through a declaratory judgment if the IRS delays acting on their applications for nine months or more. But 501(c)(4) groups must wait until the IRS makes a decision, and if denied tax-exemption, the group must start paying taxes as a for-profit corporation before it can take the IRS to court. There is no Tax Court recourse if the IRS simply decides not to act on the application. Coats’ ACCESS Act (Access to Court Challenges for Exempt Status Seekers) would bring those policies in line.

“This legislation will provide a much-needed avenue of relief for nonprofits whose applications for tax-exempt status are languishing at the IRS,” Coats said in a statement. “This bill would give groups the same tools as charities while applying for tax-exempt status.”

The IRS receives about 70,000 applications for tax-exempt status per year and currently has a backlog of about 60,000 applications. The agency has taken steps recently to reduce the backlog by streamlining the process for 501(c)(4) groups that certify they devote 60 percent or more of their time to activities that promote social welfare and introducing a shorter “EZ” application form for groups applying for 501(c)(3) status.

Coats’ bill comes at a time when the IRS is still working to move past a political-targeting scandal that unfolded during the 2012 election cycle. Last fall, the agency proposed new rules intended to more clearly define how much political activity 501(c)(4) groups are allowed to participate in. The rules, which also expanded the definition of candidate-related political activities to include things like get-out-the-vote campaigns and candidate forums, received a record amount of feedback from the public.

In May, the IRS announced it would revise the proposed rules, taking the public comments into consideration. Revised rules are expected to be released in 2015.


Chris Vest, CAE

By Chris Vest, CAE

Chris Vest, CAE is vice president, corporate communications and public relations at ASAE. MORE

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