By Webb Hubbell
Last week, nearly 275,000 charities had their non-profit status revoked, with the Internal Revenue Service releasing a list of non-profit groups that either failed to complete the required forms or had not submitted documentation for the last three years.
This represents about 17% of non-profits across the country, and although it is likely that a large portion of the de-listed organizations are no longer in existence this is a problem for more than just the charities that failed to do their paper work. What about the donors who may be continuing to fund de-listed charities? How do you determine your due diligence before making your contribution is still valid? Are long standing commitments still valid if a charity is de-listed? What about the nonprofit organizations that still exist, but have been de-listed? How do they get back non-profit status, and what do they do about contributions in the interim?
The one thing is certain is every non-profit better find out their status. If your charity is de-listed find out how do you get your status back and be prepared to answer your donor’s questions. I recommend hiring a professional like my friend Carlye Christianson to steer your charity out of “troubled waters.”Are you prepared to return donations? Can’t afford a professional, think again unless you are prepared to return donations.
If you have not been delisted, be prepared to prove your status to all potential donors. An old 501c3 letter would not do the trick if I were a substantial donor. Finally, if I am a contributor I want to know the current status of any recipient of my contributions, and if I get word that one of my donations went to a de-listed charity I recommend consulting with my tax advisor.
If your charity had its status as a nonprofit revoked, there may still be some time to file your paperwork. If your organization has annual gross receipts below $50,000, the IRS will allow you to apply for reinstatement before the end of 2012.
If you dodged the current bullet don’t think you are Scot-Free. Remember that, in all likelihood, you will need to file yearly forms with the IRS if you wish to maintain your tax-exempt status. The IRS is providing a bit of leeway given the recent changes in law, but next time you might have to go to greater lengths should your status as a non-profit be revoked.