The tax-exempt status of more than 21,000 Texas nonprofit organizations has been dropped by the IRS. The federal taxing agency says it is cleaning house. Most of those to lose the tax status have failed to file required finance reports to the IRS.
The Texas Association of Nonprofit Organizations reports that about two-thirds of the groups affected by the IRS sweep fall under the classification of 501(c)(3), which designates them as organizations for which donations are tax deductible. About 14,000 Texas 501(c)(3) organizations, or almost 20 percent in that classification category, will no longer have nonprofit status.
According to the Texas Association of Nonprofit Organizations, about 58,000 nonprofits under 501(c)(3), almost 60 percent of all nonprofit groups in the state, have retained the tax-exempt freedom.
The IRS housecleaning removed the status of 275,000 national nonprofits, but the feds’ tax watchdog says a good number were already out of business. The rest, it says, haven’t filed annual reports in at least three years, a federal requirement to maintain a nonprofit status.
In Texas, well-known nonprofit groups were on the IRS status change list, including more than a hundred Knights of Columbus groups, League of United Latin American Citizens councils and more than 150 American Legion posts.
The IRS issued more than 1 million warnings before deciding to pull the plug on some nonprofits. A second government warning was issued, and extensions to file were granted for the smallest of the groups. In Texas, about 6,000 nonprofits stepped up to the plate at the last minute to ensure they could remain nonprofits.
Even if a Texas nonprofit group’s tax status has been pulled, the organizations can try to reclaim it. The IRS said it’s offering a way back for nonprofits, including retroactive reinstatements, for a small application fee.
Source: Star-Telegram, “21,000 organizations in Texas lose tax-exempt status,” Darren Barbee, 9 June 2011