The IRS has announced that approximately 275,000 charitable organizations have automatically lost their tax-exempt status because they did not file legally required annual reports for three consecutive years. In 2006, Congress passed the Pension Protection Act, which made the filing of annual reports a requirement for most tax-exempt organizations. Although the majority of tax-exempt groups file their required returns, those which fail to do so and lose their tax-exempt status face harsh consequences.
Loss of tax-exempt status can be devastating to a charitable organization. Organizations that have their status revoked are no longer eligible to receive tax-deductible contributions, and any income they receive may be taxable. Thankfully, there is a process for reinstatement, although it can be onerous, especially to smaller entities. Those seeking reinstatement must now complete an application process regardless of whether they were required to file an application originally. Additionally, there is a user fee that can range from $100 to $850 depending on the size and profitability of the organization.
There are numerous provisions in the tax code which grant tax-favored treatment to charitable entities and many people take advantage of these provisions to organize charities, private foundations, and charitable trusts that benefit themselves, their families, and their community. In order to obtain these benefits however, these organizations must pass the strict and rigorous tests found in the Internal Revenue Code.
An experienced tax attorney is a necessity when one is seeking to found a charitable entity. If you are interested in starting your own charitable organization, visit Ourednik Law Offices to learn how our tax planning professionals can assist you today.