This commodity comes from the summer 2018 affair of the Nonprofit Quarterly, “Nonprofits as Engines of a Added Equitable Economy.”
From the boilerplate of 2010 to the end of 2017, the IRS revoked the tax-exempt acceptance of added than 760,000 nonprofit organizations for declining to book Anatomy 990 returns.1 Added recently, it has implemented the 1023-EZ process, which makes applying for federal tax-exempt cachet easier. What aftereffect accept these changes had on the numbers of nonprofits in our sector? Are there apparent differences in trends vis-à-vis 501(c)(3)s and 501(c)(4)s?
This first-of-its-kind assay is a by two key abstracts sources. The aboriginal is the Internal Revenue Anniversary Abstracts Book, the anniversary abstract of IRS statistics appear back 1863—specifically, the abstracts independent in Tables 24, 24a, and 25 of the Abstracts Books from 2007 through 2017.2 The added abstracts antecedent is the IRS’s automated aishment data, downloaded from the IRS website.3 A audible ASCII book contains all automated revocations fabricated back 2010. The IRS updates the aggregate book monthly. The adaptation acclimated for this assay was downloaded in January 2018, and included abstracts for the 2010–2017 budgetary years.
Before 2011, it was absurd to get a faculty of the accurate numbers of federally tax-exempt nonprofits in the United States; this is because there were so abounding listed nonprofits that never appear to the IRS—either because they were accurately too baby to accept to report, or they were defunct, or they were sloppy. No one absolutely knew how abounding belonged in which category. The Pension Protection Act of 2006, however, afflicted the advertisement requirements by including a accouterment that requires the IRS to abjure the tax-exempt acceptance of any nonprofit that fails to book an anniversary Anatomy 990 acknowledgment with the IRS for three afterwards years.4 The IRS was answerable with acclimation itself to accelerate a accounting apprehension of aishment to the last-known abode for anniversary nonreporting nonprofit, with aishment accident afterwards the 990 filing borderline passes for the third afterwards year of noncompliance.
The timeline set in abode by the 2006 law provided that automated revocations would activate on May 15, 2010. Appliance that timeline, about 400,000 nonprofits—more than 60 percent of them 501(c)(3) charities—were slated to accept their exemptions revoked.5 However, the IRS delayed accomplishing of the revocations from October 15, 2010 (just afterwards the alpha of the 2011 budgetary year), until the summer of 2011 (the aftermost division of the 2011 budgetary year), to accomplish abiding that added nonprofits were acquainted of the law and of their claim to file.
Many actual baby nonprofits that had not been appropriate to book a Anatomy 990 or Anatomy 990-EZ in the accomplished were decidedly blind of the new Anatomy 990-N, accepted as the “postcard” return. The Anatomy 990-N is an cyberbanking anatomy that requires a nonprofit not appropriate to book a 990 or 990-EZ to accommodate anniversary updates to basal acquaintance advice for the organization. Thus, these abate groups were at accident of actuality afraid by the action. To anticipate that, the IRS, civic basement groups, and the media did ample beat amplifying the new requirement.
The IRS’s accomplishing adjournment gave abounding organizations the befalling to accompany their filings up to date, but a assay of the IRS’s automated aishment database shows that the FY 2010 and 2011 revocations still afflicted added than 450,000 nonprofits,6 including 275,000 501(c)(3) accessible charities and clandestine foundations.7
The IRS posts a anniversary of all automated revocations to its website, both in a aggregate download advantage and as allotment of its anew revised “Tax Absolved Alignment Search” service, which provides admission to basal advice about all tax-exempt organizations.8 (The book contains advice on automated revocations only; it does not accommodate any organizations that had their absolution revoked as a aftereffect of a assay of activities and either an authoritative assurance by IRS agents or assurance by a court.)
The automated aishment dataset is actual simple, absolute twelve fields, alone four of which are required, as can be apparent in the IRS table at top.9
Interestingly, the absolution blazon (for example, 501(c)(3), 501(c)(6), etc.) acreage is optional. Fortunately, alone 28,300 out of 761,780 records, or about 3.7 percent, do not accept an absolution blazon identified; they are agitated in the database with a 0 value, admitting there actuality no such affair as a 501(c)(0) organization.10
Not surprisingly, 501(c)(3) organizations topped the anniversary of revoked exemptions from 2010 to the end of 2017, apery aloof beneath 60 percent of the total. Afterward 501(c)(3) groups were 501(c)(4) amusing abundance groups, with about 16 percent; 501(c)(7) amusement clubs, with about 5.3 percent; 501(c)(6) business leagues, with 4.8 percent; and 501(c)(19) veterans’ organizations, with 2.4 percent.11
Chart 1 shows anniversary year’s absolute of all 501(c) organizations and the agnate totals of 501(c)(3) and 501(c)(4) organizations that are included in the appear total.
One key award in reviewing the database is that 501(c)(3) organizations accept had their tax exemptions automatically revoked at a lower amount than would be expected, accustomed their arch abode amid 501(c) tax-exempt groups.
The 501(c)(3) s represented 68.5 percent of all 501(c) organizations in 2010; by 2017, that allotment had added to 78 percent, based on abstracts accessible in the anniversary Abstracts Book appear by the IRS.12
In that seven-year period, as mentioned above, automated revocations of 501(c)(3)s averaged aloof beneath 60 percent of the total, and alone approached 70 percent in one year (2015). Automated revocations fabricated above-mentioned to July 2011 (beginning in May 2010) were aboriginal about acquaint by the IRS in June 2011. Budgetary year 2011 announcements included 390,168 revocations, including about 250,000 501(c)(3) clandestine foundations and accessible charities. This was to be expected, as abounding long-dormant groups were articular in the aboriginal beachcomber of automated revocations.13
In the afterward years, the cardinal of nonprofits candy through automated aishment varied, both in absolute and for 501(c)(3) groups specifically. Absolute anniversary automated revocations for 2012–2017 accomplished a low of 36,185 in 2015 and a aerial of 84,478 in 2017. Automated revocations during the aforementioned aeon affecting 501(c)(3) groups assorted from about 25,000 in 2015 to 36,180 in 2013.14
Significantly, the absolute cardinal of nonprofits—and the cardinal of 501(c)(3) groups—has about remained abiding back 2010. Looking at Table 25 of the Abstracts Book is intriguing, because it shows a bead of 200,000 501(c)(3) groups from 2010 to 2011, back the aboriginal automated revocations were announced.15 The 2017 Abstracts Book (latest available) annal appearance there were alone 5,442 added 501(c)(3) organizations in that year than there were in 2010. Overall, there were 175,000 beneath 501(c) groups of all tax-exempt classifications in FY 2017 than there were in 2010.16
The use of the abbreviate Anatomy 1023-EZ for tax absolution as a 501(c)(3), which began in July 2014 (the final division of the 2014 federal budgetary year), may be amenable for abandoning the bottomward trend in the cardinal of 501(c)(3) groups apparent in 2010 through 2013. The abbreviate anatomy was alien by the IRS in acknowledgment to bad publicity over a growing excess of Anatomy 1023 connected anatomy applications that had accomplished added than 66,000 during 2013.17 The cardinal of 501(c)(3) applications accustomed annually by the IRS grew from a low of 37,000 in 2013 to 94,000 in 2014, and remained a or aloft 80,000 in the 2014–2017 aeon (see Blueprint 2). The IRS letters that the Anatomy 1023-EZ was acclimated for 65 percent of all applications for 501(c)(3) tax absolution during FY 2017.18
Chart 2 shows anniversary applications for 501(c)(3) tax absolution accustomed by the IRS and how they were processed, based on Table 24a of the IRS Abstracts Books.
Nonprofits that accept had their tax absolution automatically revoked accept the befalling to administer for reinstatement. For the years 2010 through 2017, 13 percent of all automatically revoked nonprofits accept been reinstated by the IRS, accretion aloof over 98,000 organizations. Typically, the IRS has adequate these organizations’ exemptions from the dates they were revoked, so that there is no gap in their almanac of exemption. However, about one-third of the reinstated organizations accept a appear gap during which time they were not tax exempt. The appear gap amid aishment date and acknowledgment date varies from a brace of months to added than three years.19
The cardinal of reinstatements for 501(c) organizations has alone anniversary year from 2010 to 2017, alpha with about 33,000 reinstated in 2010 and alone about 2,000 organizations reinstated in 2017.20 This may reflect the low cardinal of absolutely abeyant nonprofit organizations of all absolution types, as able-bodied as a growing compassionate of the charge for anniversary Anatomy 990 advertisement appliance one of the options accessible to filers.
Chart 3 adds to the antecedent blueprint depicting administration of new applications for 501(c)(3) tax absolution by including automated aishment and acknowledgment abstracts for 2010–2017.21
Two allegation after an anniversary are: (1) the changes in the cardinal of 501(c)(4) organizations amid 2010 and 2017; and (2) the amazing cardinal of 501(c)(4) groups that were automatically revoked in 2017. There were about 140,000 501(c)(4) organizations in 2010; by 2017, that cardinal had alone to aloof beneath 82,000—a abridgement of added than 40 percent that is not explained by the automated aishment abstracts for those years.24 In 2017, 58 percent of all automated revocations fabricated by the IRS were to 501(c)(4) groups (47,315 out of 77,077), a cogent abandonment from the anniversary boilerplate of 15 percent.25 This may be due to an amazing cardinal of 501(c)(4) groups actuality alive during the 2012 and/ or 2014 acclamation cycles and after declining to book 990s alpha in 2014, consistent in automated aishment in 2017. This approach may be accurate by the jump in 501(c)(4)s from 91,000 in 2013 to added than 148,000 in 2014, followed by a bead to 84,000 in 2015.26 However, if the automated aishment of 501(c)(4) organizations was due primarily or alone to the 2014 fasten in 501(c)(4) groups, that fasten should accept connected through 2016 and alike into 2017.
Chart 4 shows new tax absolution appliance assurance action and automated aishment and reinstatements for 501(c)(4) groups amid 2010 and 2017.27
It should additionally be acclaimed that, until recently, new 501(c)(4) groups were not appropriate to administer for tax absolution or contrarily acquaint the IRS of their accumulation until their aboriginal Anatomy 990 was due to be filed. However, alpha in 2016, new 501(c)(4) groups are now appropriate to book Anatomy 8976—a “Notice of Intent to Operate”—with the IRS aural sixty canicule of formation.28 In 2017, the IRS accustomed 1,908 forms and alone 474 for absolutely abstruse affidavit altered to a acumen about their proposed activities.29
We now accept several years of abstracts on IRS automated revocations accoutrement about 800,000 organizations. A few trends can be identified:
In approaching years, the Internal Revenue Anniversary Abstracts Book may be redesigned in such a way as to acquiesce for admittance of automated aishment advice as a audible dataset of interest. In the meantime, the aggregate download of the Excel spreadsheet and analytic the IRS website accommodate the befalling for advisers and others to appraise and adapt advice about tens of bags of nonprofits anniversary year that lose tax absolution after animal alternation or determination.
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