February 1, 2015

6,000 Indiana nonprofits lose tax-exempt status


Kirsten Grønbjerg

Kirsten Grønbjerg

Nearly one in 10 registered nonprofits in Indiana lost their tax-exempt status in June because they failed to file newly-required paperwork with the Internal Revenue Service, a new analysis says.

Those 6,152 nonprofits were among 275,000 throughout the U.S. that had their tax-exempt status revoked, says the analysis led by a faculty member at Indiana University.

Small nonprofits, many of them no longer operating, were most likely to have missed the IRS filing requirements and had their tax-exempt status revoked, the analysis says.

Nonprofits that lost their tax-exempt status "are mainly all-volunteer organizations, and they are a major mechanism by which people are engaged in their communities," Kirsten Grønbjerg, a professor at the School of Public and Environmental Affairs at IU Bloomington, and Efroymson Chair in Philanthropy at the Center on Philanthropy  at Indiana University, says in a statement.

Many of them, she says, now must "go through the time-consuming process of re-applying for tax-exempt status, disband, or be prepared to operate as for-profit entities."

The findings of the analysis "raise questions about the complexity of federal regulations of nonprofit organizations and point to the importance of providing guidance to nonprofit leaders on the necessity of tracking regulatory developments at all levels of government," the statement says.

While nonprofits with up to $25,000 in annual revenue were not required until 2007 to report to the IRS once they secured tax-exempt status, the 2006 Pension Protection Act required most nonprofits with annual revenues up to $25,000 to begin filing an annual electronic notice.

In June, the IRS released a list of nonprofits that failed to file the reports for three straight years, resulting in the revocation of their tax-exempt status.

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