Small Groups Continue to Lose Tax Exemption Status

Tax Professionals' Resource
September 18, 2013 — 1,494 views  
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Claiming not to know about a particular law has never been an acceptable justification. Such ignorance is likely to cause many nonprofit organizations in Maryland to lose their tax exemption status. A lesser known regulation of the Internal Revenue Service is catching many small nonprofit groups off-guard and putting their tax exemption status under danger. Not just that, it will also prohibit donors to write these contributions off their taxes.

Have the Nonprofits not learned From Their Mistakes?

This is not the first time that nonprofits are facing such danger. Back in 2011 around 280,000 nonprofit organizations had lost their tax-exempt status. But it looks like these organizations did not learn from the mass revocation of the IRS. Last year, between January and September too, around 200 Tallahassee nonprofit organizations lost their tax-exempt status due to their negligence in filing the mandatory financial reports. Most of these organizations were volunteer based and small. They included a lot of mom-and-pop firms, parent-teacher associations as well as sports and faith-based groups.

Presently, there are around 6,000 nonprofits in Maryland which are under the danger of getting their tax-exempt status revoked by the IRS. Paul Ford from Delta Lambda Foundation said that his firm is in trouble due to the regulation by the IRS. He said that like many other organizations, he too has not heard about this new filing regulation introduced by the IRS.

Spreading the Word about the IRS Regulation

Currently, Congressman Dutch Ruppersberger and Peter Franchot, Maryland State Comptroller, are spreading information about the regulation. Peter said that it’s not their policy but they are helping in communicating with the citizens about the importance of this filing. He added that it is a simple process in itself and can be even filed electronically.

Dutch Ruppersberger threw light on losing the tax-exemption status. He said that losing this status is a big deal as it is very difficult for the organizations to get it back. Also, once the tax-exempt status is lost by the organizations, some of their funds can be rescinded or held back.

The process of reapplication for the lost status can take several years as it involves a time-lag and the payment of a certain fee. In one of the cases, an organization had to wait for a period of 18 months for its re-establishment. Any of the nonprofit organizations that need help on this matter are advised to get in touch with the comptroller’s office.

Tax Professionals' Resource