It has been a few years now since the Internal Revenue Service’s ruling that all non-profits must file their taxes. Those non-profits that failed to file their taxes for three consecutive years have had their status automatically revoked. Although the regulation that engendered this reaction was not enacted this year, the impact is now being felt in the broader community.
Non-profits are typically run very leanly, by volunteers or staffs who have to juggle so many activities. Little wonder why and how so many critical functions to their continued existence are left undone or forgotten. It is not surprising too that the wave of revocations of non-profit status is hitting the non-profit community and many non-profit organizations do not even know that status and that they may be operating out-of-status. Aside from the obvious implication of holding out as an IRS exempt organization when such status has been revoked, other negative consequences are attendant to this scenario, such as:
- Failure to get support from grantor agencies and other benefactors – no one wants to donate to an organization that is out of status.
- Impression provided to stakeholders that the non-profit organization is ineptly operated.
- Lack of capacity to provide the tax-exempt benefits to current and potential donors.
- The work of the organization may be forced to be curtailed; consequence of revenue loss.
If your organization is facing this challenge, and understanding that your mission is important, a review is important and work towards regaining the tax-exempt status should be undertaken. The tax filing requirement by the IRS has also revealed that most non-profit organizations are not properly structured which might contribute to the lax approach to required regulations.
Non-profit organizations looking to regain their status need to ensure that their past due tax returns are filed and updated, especially if they need a retroactive continuation of their exempt status. While each circumstance is different, every non-profit organization needing to regain their exempt status must file a new application for such and pay the necessary fees. It is important to have your accountant review your books and contact your attorney to ensure that your documentation and process are properly done.
In our practice, we provide our clients an assessment of their organization in light of the processes they need to stay in compliance and effective as well as advise whether their structure is best for them to achieve their mission. Contact us if you do not know your status or to help get your organization back on track if your status has been revoked.