Two senators are pushing for legislation that would require the IRS to notify nonprofits if they are in danger of losing their tax-exempt status.
If the Internal Revenue Service is considering revoking a nonprofit organization’s tax-exempt status, the nonprofit should at least get advance warning, according to a new Senate bill.
Earlier this month, Sens. Ben Cardin (D-Md.) and Dan Coats (R-Ind.) introduced legislation that would require the IRS to give prior notification to nonprofit organizations in danger of having their tax-exempt status revoked.
Under current law, charities and other nonprofits automatically lose their tax-exempt status if they do not file annual information returns for three consecutive years. Smaller organizations didn’t have to file such returns until 2008, and many were unaware of the new requirement to file what is known as a Form 990-N, or e-postcard.
“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,” Coats said in a statement. “Some never realize it at all.”
Nearly 584,000 charities and other nonprofits in the U.S. have lost their status because of automatic revocation. While some of these groups were no longer in existence, many others were still operating as charities and had to apply for reinstatement.
The bill would also allow the IRS to retroactively reinstate nonprofits that were unaware of the requirement and have subsequently filed an information return.
“It’s just common sense that we ensure small charities in Maryland and across the United States receive reasonable notice before an administrative stumbling block causes a lapse in their status,” Cardin said in a statement. “This allows for minimal disruption to the good work being performed by these charities in our local communities and frees up scarce IRS resources.”