In recent months, thousands of nonprofits across the U.S. discovered their tax-exempt status had mistakenly been revoked by the Internal Revenue Service (IRS) as a result of the government agency's failure to correctly process many organizations' annual Form 990 filings.
Earlier this year, the IRS moved annual information return (Form 990 series) filing deadlines for nonprofits that operate based on a calendar year from May 15 to July 15 due to disruptions to business operations brought on by the outbreak of COVID-19. However, the IRS computer systems did not recognize the new deadline appropriately and prematurely revoked the status of thousands of nonprofits nationally.
Federal law requires the IRS to automatically revoke tax exemption for any nonprofit that fails to file annual information returns (Form 990 series) for three consecutive years. This significant glitch seems to have mostly affected nonprofits that filed 2019 returns after the May 15 deadline and did not file in one or more recent years.
Because a member of the Minnesota Council of Nonprofits (MCN) called our office about their nonprofit erroneously losing their tax-exempt status, we quickly discovered that this was not a localized issue, but rather a national issue impacting thousands of nonprofits across the country.
MCN worked with Senator Tina Smith’s office and the National Council of Nonprofits to raise this issue on a national level. Last Monday, the U.S. House Committee on Ways and Means sent a letter to Treasury Secretary Mnuchin to insist he address the erroneous revocation of thousands of nonprofits. The IRS issued a statement on October 22 stating that it would review cases and contact the organizations that received erroneous revocation notices.
While the IRS is working on correcting the glitch, it may take 30-45 days for this to happen. In the meantime, the IRS website does have a list of organizations on the auto-revocation list. If your nonprofit is on the list, your organization can be reinstated by contacting the Exempt Organizations Account Unit.
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This issue is one example of how MCN’s public policy team works daily to support our members both on issues that we monitor regularly and those that arise with little warning. Within weeks after hearing from a member nonprofit about this problem, MCN positioned the problem to be discussed and remedied at the highest levels of state and federal government. We encourage members to contact MCN directly as new questions or concerns arise.