Since 2010, 623 Fort Wayne-area charities and nonprofit organizations have lost their tax-exempt status without adequate notification from the Internal Revenue Service. Across Indiana, 11,600 nonprofits had their status revoked during the same time period.
The reason? 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 charities that are unaware of the requirement. Nationwide, more than 550,000 charities and nonprofits have lost their tax-exempt status over the past four years. Because the IRS does not 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. Some never realize it at all.
To address this problem, today I am introducing legislation that would require the IRS to notify nonprofits before their tax-exempt status is automatically revoked. I specifically chose May 15 to introduce this legislation, as today marks the filing deadline for tax-exempt organizations.
For too long, this date has meant that another round of charities will needlessly lose their tax-exempt status and fail to learn about this problem until it is too late. Once 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.
Over the past few years, Fort Wayne-based organizations that had to fight to regain tax-exempt status have included:
A charity that sends care packages to our troops and supports honor flights for World War II veterans.
A college campus ministry.
An animal welfare organization that rescues horses.
A charity that provides aid to Haiti.
A charity that supports peace and development in Darfur.
A foundation operated by local churches.
A middle school parent organization.
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 were able to persuade the IRS to renew their tax-exempt status, including 20 in Fort Wayne.
My legislation would allow the IRS to retroactively reinstate tax-exempt status if the charity did not receive this notice and subsequently filed an information return.
As the government is forced to reduce spending, community and faith-based organizations are increasingly filling the void. We need to make sure we allow these organizations to grow without federal interference.
My proposal is a common-sense solution that will help many Indiana charities that are serving fellow Hoosiers and do not have time to deal with Uncle Sam’s bureaucracy. We need to do all we can to support these vital organizations.