Washington, D.C.—GuideStar—the leading source of nonprofit information—today published the results of its in-depth analysis of the IRS's first Automatic Revocation of Exemption List, which found that the top 100 largest organizations previously reported revenue ranging from $4 million to just over $400 million. Details of the report can be found at www.guidestar.org/rxa/news/articles/2011/for-whom-revocations-tolled.aspx, and available by request is the full list of the top 100 by revenue as well as the lists of the largest nonprofits that were revoked in each state and for each nonprofit focus area.
"We have known for a long time that this list was going to alter the scope of the nonprofit sector, and our analysis demonstrates just how far reaching the list is," said Bob Ottenhoff, president and CEO of GuideStar. "The IRS has been trying to get the word out about this for years, and I'm surprised that large organizations didn't hear about it. Those nonprofits who ignored the IRS's repeated warnings and ultimately had their tax-exempt status revoked have either long since gone out of business and needed to be taken off the list, or they need to conduct a thorough review and restructure of their internal processes."
Chuck McLean, GuideStar's vice president of research, studied the list of 279,595 nonprofits named on the IRS's list of revoked organizations and found that GuideStar did not have information on almost half (134,615) of the revoked organizations because they either never appeared on the IRS list of exempt organizations or have not been on it for an extended period of time. For those that GuideStar did have information on, McLean found that:
- The top three largest nonprofits who had their tax-exempt status revoked last reported more than $200 million in revenue. They are:
- Credit Unions Chartered in the State of Pennsylvania, based in Harrisburg, PA; reported $402,476,562 in revenue in 2006
- Fleet Financial Group Medical and Dental Plan, based in Providence, RI; reported $234,325,843 in revenue in 2004
- Kansas Credit Union Department, based in Topeka, KS; reported $217,829,688 in revenue in 2006
- The 50 largest nonprofits who had their tax-exempt status revoked formerly reported more than $10 million in revenue each. The full top 100 list is available upon request.
- More than half (57 percent) of the revoked organizations were 501(c)(3) public charities. Another 9 percent were 501(c)(3) private foundations.
- More than 75 percent of the revoked organizations had annual revenues of less than $25,000. A chart with a breakdown of revoked organizations by revenue range is available on the GuideStar Web site.
- Public services organizations made up the second-largest focus area of revoked organizations (21 percent), followed by educational organizations (7 percent), and public, societal benefit nonprofits (also 7 percent). Nearly half (48 percent) of the revoked nonprofits fell into the "unclassified" category, indicating that the nonprofit could have been formed before the IRS began using the National Taxonomy of Exempt Entities (NTEE) classification system a decade ago. A chart of the revoked organizations broken down by focus area is available on the GuideStar Web site.
- The largest number of revoked organizations were based in California (33,733), followed by Texas (21,468), New York (19,408), and Florida (13,903). A list of the top 10 largest organizations, ranked by revenue, that were revoked in each state area is available upon request.
"I have long advocated for transparency and accountability in the sector in my blog and elsewhere. We are happy the IRS is shining a light on the nonprofit sector and ferreting out the organizations that do not comply with the most basic of regulatory measures, even if they are large organizations," added Ottenhoff. "Our analysis clearly demonstrates that we have entered the era of verification. Before dealing with a nonprofit—and especially before making a donation—people need to verify that the nonprofit is actually considered a nonprofit in the eyes of the government so they know their gifts will be tax deductible. Studies have shown us that philanthropic donors want to know if a nonprofit is legitimate before they give a gift, and GuideStar.org is simply the best source of comprehensive information about nonprofit status."
GuideStar is the most comprehensive online destination where a person can find out for free whether a nonprofit is tax exempt, or if additional investigation is required. GuideStar has already incorporated automatic revocation data and other information about nonprofits' standing with the IRS into its database and GuideStar Charity Check, which confirms that a grantee or gift recipient does not appear on the list. Failure to research—and document—this before making a payout may cause the IRS to disallow a charitable distribution, making the grantmaking organization liable for excise taxes.
About the IRS's Automatic Revocation of Exemption List
The Pension Protection Act of 2006 requires the IRS to revoke the tax-exempt status of any organization required to file an annual return (Form 990, 990-N, 990-EZ, or 990-PF) that fails to do so for three consecutive years. Revocations are automatic and mandatory under the law. The Automatic Revocation of Exemption List published on June 8, 2011, which reduced the nonprofit sector by 17 percent, represents the first time this provision of the Pension Protection Act has been put into effect.
Those nonprofits appearing on the list must now file a federal income tax return and pay federal income taxes, and if they previously accepted tax-deductible contributions, they no longer can do so. Those nonprofits that do not appear on the list technically do not have to do anything, though GuideStar recommends reaching out to donors, funders, and other constituents to assure them all is well. The GuideStar Exchange is a program to help nonprofits share their work and accomplishments and connect with potential funders.
For donors, the list means that donors who wish to deduct a charitable gift on their taxes need to confirm that the nonprofit receiving the donation is still tax exempt before making the contribution. Otherwise, the IRS may disallow the deduction, and donors may be required to pay a penalty. It also means foundations need to confirm that a grantee or gift recipient does not appear in the list before making a payout. Failure to do—and document—this research may cause the IRS to disallow a charitable distribution, making the grantmaker organization liable for excise taxes.
For more information on automatic revocations, please visit http://www.guidestar.org/revocationsresources or register to attend the free webinar on June 28: http://www2.guidestar.org/rxg/news/webinars/6-28-11-webinar-revocations.aspx.
GuideStar, www.guidestar.org, connects people and organizations with information on the programs and finances of more than 1.8 million IRS-recognized nonprofits. GuideStar serves a wide audience inside and outside the nonprofit sector, including individual donors, nonprofit leaders, grantmakers, government officials, academic researchers, and the media.
Lindsay J.K. Nichols