Coats Bill Requires Warning Before Automatic Revocation

Coats billNonprofit organizations that fail to file their annual information returns for three consecutive years, regardless of the size of the organization, automatically lose their exemption. According to Senator Dan Coats (R-Ind.), this has caused more than 550,000 nonprofits to lose their exemption over the past four years, many because they were unaware of the filing requirement.

Coats is hoping his Senate bill, introduced last week, will help. The bill would require the IRS to notify an organization at least 60 days before its exemption is automatically revoked. If the organization is not notified, the IRS can reinstate its exemption retroactively without the organization filing for reinstatement if it files an information return.

Explaining the need for the bill, Coats explained: “Because the IRS does not adequately notify charities as this deadline approaches, many nonprofits discover the problem after their names appear on a list of organizations that have already lost their status, after it is too late to act.”

However, the IRS does, in fact, notify nonprofits when their exemption is in jeopardy for failing to file 990s. Unfortunately, a large number of organizations never receive these notices because they fail to inform the IRS of address changes. Other nonprofits simply fail to heed the IRS notices.

The bill is also intended to reduce the IRS’ caseload. According to the National Taxpayer Advocate, as of 2013 more than 50,000 nonprofits have reapplied for exempt status after being automatically revoked. The IRS has reinstated the exemption of fewer than half of the applicants to date.

Do you think this bill does enough to help small organizations from being automatically revoked?

NOTE: The information contained herein is not intended to be legal advice and the reader should know that no Attorney-Client relationship or privilege is formed by the posting or reading of this article which is also not intended to solicit business.

Casey Summar, Partner, The Law Firm for Non-Profits,1812 W Burbank Blvd, #7445, Burbank, CA 91506

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