IRS backtracks on revoking charities’ tax-exempt status

The Internal Revenue Service is reversing course on the automatic revocation notices that it sent to more than 30,000 tax-exempt organizations, including over 28,000 charities, after an outcry from a group of lawmakers on the tax-writing House Ways and Means Committee.

The agency issued a statement Thursday saying that it would review the cases and correspond with the organizations that received the notice.

“Due to systemic limitations, we were unable to update this deadline in the program that automatically issues notices of revocation. This caused some revocation notices to be issued prematurely,” said the IRS. “Nevertheless, the IRS prevented eligible organizations that attempted to file electronically by July 15 from being listed as automatically revoked on IRS.gov, where they are still shown as tax-exempt. At the same time, we are processing paper filings which allow the reversal of auto-revocation for those filers. The IRS is reviewing the cases and corresponding with organizations that received the premature notice. Additionally, we have dedicated fax number, (855) 247-6123, to receive correspondence from organizations in this situation that wish to present documentation of their applicable filings."

Earlier this week, Democrats on the House Ways and Means Oversight Subcommittee sent a letter to Treasury Secretary Steven Mnuchin and IRS Commissioner Chuck Rettig demanding to know why the IRS was revoking the tax-exempt status of so many charities just ahead of the crucial holiday-giving season in the midst of the COVID-19 pandemic (see story). Many taxpayers make their charitable contributions before the end of the year to be able to claim charitable deductions on their taxes the following spring, and losing tax-exempt status could prove to be a substantial problem for nonprofits.

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The IRS automatically revokes the tax-exempt status of any nonprofit that fails to file a Form 990 for three years in a row. The agency sent revocation notices to 31,500 nonprofits that hadn’t filed by May 15, even though earlier this year it had granted them an extension until July 15 because of the pandemic and is still processing millions of pieces of unopened mail that accumulated during the pandemic, some of which could contain the missing forms.

“We urge you to investigate this apparent error by the Internal Revenue Service and take corrective action immediately,” wrote the lawmakers, led by Subcommittee Chairman Bill Pascrell, D-New Jersey. “These organizations do critically important work for our communities — especially during this difficult time for our nation — and we must ensure that the IRS is not wrongfully terminating their exempt status.”