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Last updated on Thursday, February 12, 2015
(WASHINGTON, DC) - The Senate Finance Committee passed legislation authored by Senator Dan Coats (R-Ind.) that would require the Internal Revenue Service (IRS) to notify nonprofit organizations in a timely manner before their tax-exempt status is automatically revoked.
The bill - titled the NOTICE Act (S.400) - also would allow the IRS to retroactively reinstate tax-exempt status if the nonprofit did not receive this notice and subsequently files an information return.
The legislation now heads to the full Senate for consideration.
"I am pleased that the Finance Committee recognizes the importance of letting nonprofits grow without being caught in a trap they were not notified about," said Coats. "This is a wrong that needs to be corrected. I look forward to the full Senate considering my bill."
Under current federal law, charities and other nonprofits automatically lose their tax-exempt status if they do not file annual information returns - regardless of how much income the organization receives - for three consecutive years. Originally intended to clear defunct organizations from the government's books, this automatic revocation is punishing small charities that are unaware of the requirement.
For example, the IRS automatically revoked the tax-exempt status of over 12,000 charities and other nonprofits in Indiana. Less than a thousand of them successfully navigated the IRS process of reinstating their status.
Nationwide, nearly 584,000 charities and other nonprofit lost their status because of the automatic revocation. While many of these may have been defunct, many more were still operating as charities and had to reapply for tax-exempt status. Others may still be unaware that their status has been revoked. At least 80,000 organizations reapplied for exempt status after suffering through the automatic revocation. To date, the IRS has processed and reinstated the tax-exempt status of less than 51,000 of these nonprofits.
National organizations supporting the bill include the Alliance for Charitable Reform and the National Volunteer Fire Council. Indiana organizations supporting the legislation include the Indiana Philanthropy Alliance, Indiana CPA Society and Indiana Society of Enrolled Agents.
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