Some 275,000 organizations that failed to file legally required annual reports for three consecutive years have automatically lost their tax-exempt status, the IRS announced Wednesday.
The agency said the vast majority of the affected groups are defunct, but set out special steps to help existing organizations apply for reinstatement of their tax-exempt status.
Most tax-exempt organizations are required to file an annual information return or notice with the IRS under the 2006 Pension Protection Act (PPA). The law imposed a filing requirement on small organizations for the first time in 2007. In addition, it automatically revokes the tax-exempt status of any organization that does not file required returns or notices for three years in a row.
The IRS said it had made an extensive effort to inform tax-exempt groups of the changes in the law, including mailing more than 1 million notices to organizations that had not filed. Last year, the agency published a list of at-risk groups and gave smaller organizations an additional five months to file required notices and come into compliance.
About 50,000 groups filed during this extension period. As a result, the IRS said, most small tax-exempt organizations are now in compliance with the 2006 law.
“During the past several years, the IRS has gone the extra mile to help make tax-exempt groups aware of their legal filing requirement and allow them additional time to file,” IRS commissioner Doug Shulman said in the announcement. “Still, we realize there may be some legitimate organizations, especially very small ones, that were unaware of their new filing requirement. We are taking additional steps for these groups to maintain their tax-exempt status without jeopardizing their operations or harming their donors.”
The IRS issued guidance Wednesday on how organizations can apply for reinstatement of their tax-exempt status, including retroactive reinstatement. It also announced transition relief for certain small tax-exempt groups — those with annual gross receipts of $50,000 or less for 2010 — that were made subject to the new "postcard" filing under the PPA. The 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.