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Many nonprofits could lose tax-exempt status

Time is running out on the Suspicious Cheese Lords.

The District of Columbia a cappella group and more than 200,000 other small nonprofit organizations have until midnight Monday to file with the IRS or lose their tax-exempt status under a new law many of them have failed to notice.

The law, intended to increase transparency for contributors and more accurately measure nonprofits' billions of dollars in annual activity, requires for the first time that those with less than $25,000 in annual revenue file tax forms each year.

Clifton "Skip" West, president of the Suspicious Cheese Lords and a forensic toxicologist by day, had no idea of the requirement until just the other day. "I was focused on the artistic side," he said.

On Thursday, West saw a re-tweeted warning from a nonprofit association. When he clicked through to the IRS website, he realized with a start, "Oh my God … we have to do this, now."

The IRS says that more than 600,000 organizations are affected by the law, approved in 2006, and that many have complied. But the Urban Institute estimates that 214,000 public charities are in danger of losing their tax-exempt status Monday, and an additional 126,000 by the end of the year, as filing deadlines linked to various kinds of fiscal years pass.

The Urban Institute's database includes many familiar names — those of alumni groups, neighborhood PTAs, community theaters.

The law does not affect churches and church-related organizations.

"I'm hoping that most of the organizations that fall off the list are no longer out there," said Lois Lerner, IRS director of exempt organizations, which would leave the agency with a far more accurate sense of the sector.

But there are those, like the Suspicious Cheese Lords, that are still very much alive. In fact, the small music ensemble has been increasingly successful, with a growing international following of scholars and musicologists. It even held a private performance for the pope. The group, which took its name from a loopy translation of a Latin title, researches and performs little-known and previously unrecorded works by Renaissance composers.

Such groups are often all-volunteer and frequently change leadership, said Tom Pollak, director of the National Center for Charitable Statistics at the Urban Institute.

"These people are working in communities," said Tim Delaney, president and chief executive of the National Council of Nonprofits. "They're not hanging out in law libraries figuring out how federal tax law has changed, forcing them to file new forms."

Of course, it's not like this has been a secret.

In addition to the traditional letters, news releases and notices online, the IRS has for the past three years reached out to small-town libraries and congressional offices, to federal employees and remote radio stations as well as using Twitter and podcasts.

For all those that don't file the IRS short form or a tax return, or apply for an extension by the deadline, tax-exempt status will be revoked. Nonprofits have three years to comply with the law. Those whose status is revoked can apply to have it reinstated, and if it is restored before the end of the year, the IRS won't notify donors or others of the change.

But that will cost most nonprofit groups an $850 filing fee, and the time it takes to win reapproval is likely to be lengthy, Delaney said.

Many nonprofits could lose tax-exempt status 05/15/10 [Last modified: Saturday, May 15, 2010 9:15pm]
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