GuideStar recently posted a free white paper on a not only interesting but also extremely important topic. GuideStar’s paper Automatic Revocation of Nonprofits’ Tax-Exempt Status, is available for download on their website at www.guidestar.org.
This white paper offers an easy to understand, high-level look at the implications of the 2006 Pension Protection Act (PPA) and filing requirements for tax-exempt organizations. The PPA mandates that the IRS must revoke the tax-exempt status of organizations that have not filed a 990 for consecutive years.
As a result, Guidestar estimates as many as 300,000 nonprofits may lose their tax-exempt status, effectively shrinking the nonprofit sector by 25%. Revocation has a drastic and expensive impact on a nonprofit. It will no longer be able to accept tax-deductible contributions, it will need to pay federal income taxes, it may incur penalties, it may no longer qualify for grants from foundations, and it could result in the loss of trust from donors, members and clients.
It is a good reminder that we need to make sure the organizational side of what we do is as good as the outreach/ministry side of what we do. We owe it to our donors and supporters to make sure their gifts are protected and wisely stewarded. Another excellent resource for all Christian ministries, regardless of size, is Evangelical Council for Financial Accountability (ECFA).