Nonprofit Tax Exempt Status in Danger

The Pension Protection Act of 2006 requires the IRS to revoke the federal tax exemption of any organization required to file an annual return that has failed to do so for three consecutive years. This is most concerning for smaller nonprofits with gross revenues less than $25,000, who were not required to submit returns prior to 2006. However after the Pension Protection Act passed, the IRS created Form 990-N for organizations such as these, and will begin revoking tax exempt status this year, sending revocation notices in 2011.

There is an estimated 350,000 to 400,000 nonprofits in danger of losing their exemptions, which can only be recovered after re-applying, waiting several months and paying a fee ranging from $400 to $850.

Additionally, Grantmakers and donors should seek to verify the nonprofit status of organizations they plan on giving to in order to insure their exempt status, and compliance with the law.

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