Charities Lose Tax Exempt Status

The IRS recently revoked the tax exempt status of 275,000 charities across the U.S. Look here for a list of these charities. Many of these charities were exempt because they failed to file the required Form 990-N. In 2007, the IRS required all charities to file a Form 990-N, and charities had until October 15, 2010 to do so.

These exempt charities will now have to file and pay income tax on their earnings and begin paying state sales tax on their purchases. Small charities with annual gross receipts of $50,000 or less can take part in a reinstatement procedure. The IRS website states that “[t]he relief allows eligible small organizations to regain their tax-exempt status retroactive to the date of revocation and pay a reduced application fee of $100 rather than the typical $400 or $850 fee.”

For taxpayers, these exemptions mean that any contributions made to one of these 270,000 charities will no longer be deductable. If a taxpayer does report a deduction for a contribution to one of these exempt charities, then the he or she could owe the IRS additional income taxes with interest and penalties.

See Deirdre Wheatley-Liss, Did your favorite non-profit just lose its tax exempt status?, NJ Elder L. & Est. Plan., Jun. 13, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.