Up to 25% of Nonprofit Groups Could Soon Lose Charity Status

As many as a quarter of the nation’s nonprofit organizations could lose their tax exemptions next month due to an obscure provision in a four-year-old pension-reform law, according to The New York Times.

The Pension Protection Act of 2006 includes a requirement that all charities file tax forms and directs the Internal Revenue Service to revoke exemptions for groups that fail to file for three years in a row. The three-year deadline falls of May 15.

In the past, charities that had annual revenue of less than $25,000 were excused from filing tax forms.

Diana Aviv, president of the nonprofit coalition Independent Sector, said the law improves tracking and management of nonprofit organizations but will create “an unholy mess” in the short term.

Since the bill’s passage, the IRS has sent out hundreds of thousands of letters to potentially affected groups and will probably not issue revocation notices until January to give charities a chance to file the required forms.

(Free registration is required to view this article.)