More than 275,000 US nonprofits have tax exempt status revoked

As I wrote here on the blog back in March thousands of nonprofit organisations in the US were expected to have their tax exempt status removed due to significant changes with the IRS after tax deadlines passed in April. Now that the reporting has been finalised the depth of the impact seems to have been far more severe than many analysts had originally predicted. Whether the data reported reflects mass confusion about the new tax laws or a reflection of the state of the economy overall is impossible to determine but I’m certain that it is a combination of both.

According to the IRS announcement the tax exemptions were revoked to a staggering total of 275,000 nonprofit organisations. Does that mean over a quarter of a million charities have been directly impacted? According to insiders that isn’t likely as the lack of any response from tens of thousands suggests that operations for many had ceased long before this years changes were enforced. Just how many is not known at this time but more than 25% is likely with a chance that as many as half had already ended fundraising activities.

Regardless of how the actual numbers play out what is unquestionable is that it significantly changes the nonprofit landscape in the US. The reduction of so many nonprofits equates to about one in six of all that were listed, thus bringing the new total down to approximately 1.3 million charities and associated registered organisations. Some industry analysts feel that the overall outcome could be positive allowing for a more accurate assessment of all relevant data within the nonprofit sector, with the understanding being that most of those who would no longer be counted had very marginal if any fundraising activities in recent times.

All of these changes were a result of a federal law that was passed five years ago finally being fully enacted. Prior to the ruling an organisation had to have annual revenues greater than $25,000 to necessitate filing with the IRS. It is estimated that the old constraints applied to just over 500,000 of the 1.6 million registered nonprofits in the country. A combination of red tape and concerns that far too many organisations within the sector were not aware of the changes that were forthcoming resulted in various extensions while simultaneously renewed efforts were made to contact nonprofits to advise them of the new laws.

When the dust settles over the coming year it will be easier to get a clear understanding of just how deep the impact of the tax exempt revocation was, theoretically at least I would expect to see a reasonable number of organisations that never filed seek re-certification of 501(c) 3 status. The IRS have implemented an expedited process for those organisations that wish to reapply with a reduced fee of $100 which is form 1023.

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