Lost 501c3 Status Haunts Nonprofits Across the Country

How scary would it be to lose tax-exempt status after all of that work?

It has been a challenging year for many, and nonprofits have played a critical role in helping communities across the country during these trying times. As we approach the holiday season, nearly 30,000 nonprofits, including 28,000 charities, have lost their 501c3 status. This comes at the most popular time of year for many people to donate to these charitable organizations.

Lost 501c3 status haunts nonprofits across the country

Nonprofits across the country seek 501c3 status to be able to operate tax-free, receive charitable donations and apply for grants. To obtain this, organizations must tackle a tedious filing process, and the Internal Revenue Service estimates that creating a nonprofit takes more than 100 hours and thousands of dollars in professional fees.

How scary would it be to lose tax-exempt status after all of that work? The fear that haunts nonprofits across the country became a reality for more than 30,000 organizations, and it seems a deadline error by the IRS could have contributed to this issue.

To keep nonprofit status, organizations must file a Form 990 for three consecutive years by May 15. The deadline was extended to July 15 this year due to COVID-19. It appears that many who filed by July 15 still lost their tax-exempt status if they submitted their forms after May 15. In fact, the House Committee on Ways and Means reported a 20 percent increase in the number of organizations that lost 501c3 status between May 1 and October 8 in 2020 compared to the same date range in 2019.

Is there a happy ending?

To address these concerns, the House Committee on Ways and Means sent a letter to Treasury Secretary Steven Mnuchin about the increase in lost tax-exempt status and the suspected IRS error. The letter urges Secretary Mnuchin to investigate the issue and take corrective action before the end of the month. The IRS responded and said it will work to address any mistaken tax-exempt revocations.

If you believe your organization’s 501c3 status was wrongfully revoked, you can contact the IRS via the dedicated fax number it created for communications about this issue. Send documentation of your nonprofit’s filings to (855) 247-6123.

Let Resilia help

At Resilia, our team is dedicated to helping nonprofits from formation to streamlining day-to-day management of grants and projects. We help new and existing organizations file for tax exempt status and stay compliant afterward. Learn more about how we can best meet your organization’s needs.