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Warning – shameless self-promotion follows:

We have just released a new report from our Indiana Nonprofit Sector Project. The report highlights findings from our analysis of 6,152 Indiana nonprofits that have had their tax-exempt status revoked by the Internal Revenue Service because they failed to comply with new reporting requirement mandated by the Pension Protection Act of 2006. They were among 275,000 nationally included on the revocation list published by the IRS on June 8, 2011. The report also describes the results of our efforts to alert Indiana nonprofits that were at risk of losing their exempt status and that had previously participated in one or more of our surveys.

Click here to see the Press Release for this study. The full report is described in more detail here: IRS Status Initiative: Indiana Nonprofits and Compliance with the Pension Protection Act of 2006. The report itself is available here:  www.indiana.edu/~nonprof/results/database/INS.IRSRevocation.pdf.

Here are the five key findings:

1.      Some 9 percent of Indiana nonprofits that were included on IRS published lists of tax-exempt organizations in April 2010 (before the May 17, 2010 deadline for meeting the new filing requirements) lost their tax-exempt status. Other est­imates of 17 percent nation­ally exagger­ate the loss because almost half of the revoked nonprofits had al­ready been omitted from the publish­ed list of ex­empt entities by April of 2010.

2.      Cemeteries, social welfare (advocacy) nonprofits, and nonprofit business associations had the highest revocation rates. Losses were also disproportionately high for human service and environmental/animal non­profits; for small nonprofits; and for those that had obtained their exempt status fairly recently. Charities had revo­­­cation rates that were slightly below the overall average.

3.      Fraternal societies operating under the lodge system, veterans groups, and other nonprofits with close connections to national or regional headquarter organ­­­izations were most successful in avoiding revocation of their tax exempt status, given relatively high percent­ages that had been at-risk of losing their tax exempt status. 

4.      Many nonprofits that lost their exempt status were undoubtedly defunct. How­ever, follow-up work with a small group of Indiana nonprofits that have partici­pated in one or more surveys conducted as part of the Indiana Nonprofit Sector project shows that perhaps up to two-fifths of the revoked nonprofits are still alive. These nonprofits will now have to go through a cumbersome and expensive process of getting their ex­empt status reinstated. Otherwise, they must dis­band, begin to file corporate tax returns and pay rele­vant income taxes on net earnings, or continue to oper­­ate below the IRS radar screen.

5.      Many of the nonprofits that were at risk of losing their exempt status and/or lost it appear to be confused about differ­ences in legal status at the federal and state levels and by the complexity of non­profit regulations.

Kirsten

Kirsten A. Grønbjerg

Efroymson Chair in Philanthropy

Center on Philanthropy at Indiana University

Chair: Governance and Management Faculty

School of Public & Environmental Affairs

SPEA, Room 419, Indiana University

1315 E. 10th Street

Bloomington, IN 47405

(812) 855-5971; fax: (812)-855-7802

kgronbj@indiana.edu

http://www.spea.indiana.edu/gronbjerg/