City looking to raise local taxes hits up charities to pony up…

Lowell, MA, has found a way to boost its local tax revenue. The city's plan is to force nonprofits to make "payment in lieu of taxes" which is "equal to 25 percent of the equivalent residential property tax bill." Lowell's story can be found here.

Groups that have state property tax exemptions are generally thought to provide public benefits for the public good. Arguably, many nonprofits could be severely hurt if property taxes were imposed. For some municipalities like Lowell, however, find this untapped revenue stream just too good to pass up in times of low tax revenue for local jurisdictions.

New Charity Search Tool from the IRS

The IRS has a new online search tool to verify a charity's tax and filing status.

Taxpayers can use the tool for the following:

1. To verify a charity's eligibility to receive tax-deductible contributions. (Publication 78 data).
2. To determine if a charity has had its tax-exempt status automatically revoked.
3. To determine if the charity filed a Form 990-N

275,000 charities lose their tax exemption.

According to IR-2011-63 (June 8, 2011), the IRS has announced that approximately 275,000 organizations have had their tax exemption administratively revoked.  Approximately 7,000 of those organizations are in Washington State.  A state by state searchable list of the revoked organizations can be found here.  Publication of an organization's name on the Auto-Revocation List serves as notice to donors that the organization is no longer eligible to receive tax-deductible contributions.  If a charity has its exemption automatically revoked, it will have to request a reinstatement from the IRS for which more information can be found here.

If your organization has lost its exemption and you would like assistance in the reinstatement process or have other questions, you may contact me office for a consultation.  

The importance of immediately fixing a lost tax exemption.

Under the basic federal income tax rules, all income derived by an individual (or business entity) is taxable.  This general rule applies to all entities unless those entities can demonstrate that they qualify for a specific exemption.  Therefore, once a charity loses its exemption (e.g. § 501(c)(3) status) it will owe tax on all of its income.  Additionally, a deduction of a charitable donation made by a donor may be jeopardized and depending on the situation, a corporate officer or director could be held liable for the charity’s failure to file appropriate returns or to pay tax.  

My organization has lost its tax exempt status, what do I do now?

All too frequently, § 501(c)(3) organizations lose their tax exempt status for failing to make proper filings or otherwise failing to meet the various requirements of the IRS.   In essence, they have failed to operate their charity in accordance with their exempt purpose.  Depending on the situation, the organization can either re-file for tax exemption by completing a new Form 1023, or it can make a request for reinstatement of the previous tax exemption.  If possible, a charity should pursue a reinstatement request to avoid the headache of having to go through the Form 1023 process, although the reinstatement process may not be available to certain charities in certain situations.