(PRWEB) August 26, 2011
Nonprofit attorney Sandra Pfau Englund is calling on the IRS to immediately suspend its tax exempt organization auto revocation program. The program, implemented in June 2011, automatically revokes the federal tax exempt status of organizations that have failed to file IRS annual information returns – Forms 990 – for three consecutive years. According to Englund, however, the IRS system implementing the new law is flawed and is currently revoking the tax status of thousands of organizations in error.
“Churches that have been listed in the IRS records as tax-exempt for 50+ years, and are not even required to file IRS Form 990 information returns are having their exempt status revoked,” states Englund. “The IRS is aware of this problem but is still requiring these churches to reapply for tax status to be listed again in the IRS records. It makes good work for nonprofit attorneys like me but it is illogical and is not the intent of the law.”
Section 6033(j) of the Tax Code, enacted as part of the Pension Protection Act of 2006, implemented new rules that now require all nonprofit organizations, regardless of gross income, to file the appropriate IRS Form 990 annual information returns (990N, 990EZ or 990). The law also provides that organizations that fail to file the returns for three consecutive years will have their tax status automatically revoked. The IRS published its first list of auto-revoked organizations in June 2011, and continues to update and add to that list every month.
Churches, and certain other organizations, however, are exempt from filing the IRS returns. According to Englund, the IRS system appears seriously flawed, including on the revocation list thousands of organizations that should not be revoked under the provisions of new law.
“The IRS knows its system is flawed yet keeps revoking the exempt status of thousands more organizations each month,” said Englund. “The IRS says on its website that even though the churches have been listed in its Publication 78 as tax exempt for years and are not required to file the information returns, because the IRS did not have the churches properly classified in IRS records its new system automatically revokes the churches’ tax status. Even knowing this system error, the IRS is requiring all these legitimate churches to reapply for tax status,” Englund concluded. The IRS statements are located at http://www.irs.gov/charities/article/0,,id=240100,00.html).
Similarly the IRS system is revoking the tax status of thousands of organizations exempt under group letter rulings. These organizations obtain federal tax status by joining a parent group. The problem here appears to be that the IRS does not collect information on when the member/subordinate organizations join the parent and obtain federal tax exempt status. As a result, the IRS’ new system cannot accurately determine when these groups have failed to file the Forms 990 for three consecutive years.
“I work with an organization, Parent Booster USA whose members are all school music, athletic and other booster clubs. This organization has had members revoked PRIOR to their even joining the parent and getting tax exempt status. We are absolutely perplexed at the criteria or information the IRS is using to make these revocations,” noted Englund.
Englund and her firm have contacted Lois Lerner, Director of the IRS’ Exempt Organizations Division, the IRS Taxpayer Advocate and members of Congress in an effort to get the IRS auto revocation system reviewed. Both Lerner, and the Cincinnati taxpayer advocate office say they will look into the issue but have offered no solutions to date. “The fall is often the busiest fundraising season for nonprofits,” said Englund. “It’s critical that the IRS auto revocation system be fixed, or suspended until it can be fixed, so that legitimate churches and other organizations can continue their work.”
Pfau Englund Nonprofit Law, P.C. assists nonprofit organizations with federal tax-exempt issues. Nonprofit organizations that have had their tax status revoked, or otherwise need assistance are welcome to contact the firm.