NCPA - National Center for Policy Analysis


May 19, 2010

For many small charities in the United States, May 17 may be remembered as the day their tax exemptions died.  This was the deadline for charities with annual revenues of less than $25,000 to file Form 990 with the IRS, say Suzanne Garment and Leslie Lenkowsky, both with the Center on Philanthropy at Indiana University and writing a book on philanthropy and public policy. 

The IRS uses Form 990 to verify that charitable organizations meet the conditions for receiving tax deductible contributions and qualifying for tax exemptions: 

  • Until now, the smallest charities did not have to file 990s.
  • But thanks to a seemingly minor provision of the 2006 Pension Protection Act, more than 400,000 additional nonprofits -- nearly half of public charities registered with the IRS -- now have to do so.
  • If not, the IRS will take steps to revoke their tax exempt status. 

Supporters say the new filing requirement will prevent tax privileges from going to organizations that do not deserve them or may no longer even exist.  But many smaller charities are unaccustomed to submitting these reports and unprepared to assemble the necessary information.  They may not file and may find themselves newly liable for taxes.  If they want their tax exemptions reinstated, they will incur the costs of new filings and legal fees. 

With recession strained budgets, these small charities can ill afford any new expenses.  Even more worrisome are some of the larger implications of the growing scrutiny by the IRS and state agencies, say Garment and Lenkowsky. 

Source: Suzanne Garment and Leslie Lenkowsky, "The IRS Cracks Down on Small Charities," Wall Street Journal, May 19, 2010. 

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