Senators push bill giving tax-exempt groups more notice before losing their status

A bipartisan pair of senators introduced a bill on Friday that would require the IRS to give a nonprofit organization ample notice before revoking its tax-exempt status. 

Sens. Dan CoatsDaniel (Dan) Ray CoatsHow President Biden can hit a home run Former Trump intel chief Coats introduces Biden nominee Haines at hearing Senate Intelligence Committee leaders warn of Chinese threats to national security MORE (R-Ind.) and Ben CardinBenjamin (Ben) Louis CardinLiberals howl after Democrats cave on witnesses Senate strikes deal, bypassing calling impeachment witnesses Senators, impeachment teams scramble to cut deal on witnesses MORE (D-Md.) are co-sponsoring the legislation that they say will give charities and tax-exempt groups more time to ensure they have filed the right paperwork to maintain their status.

"This allows for minimal disruption to the good work being performed by these charities in our local communities and frees up scarce IRS resources," Cardin said.


Under federal law, charities and other nonprofits automatically lose their tax-exempt status if they do not file annual information returns — regardless of how much income the organization receives — for three consecutive years.

The senators say that the rule is actually hurting small groups that don't know about the requirement instead of helping the government clear out defunct organizations.

The measure also would allows the IRS to retroactively reinstate tax-exempt status if the nonprofit did not receive this notice and subsequently files an information return.

Nationwide, nearly 584,000 charities and other nonprofit lost their status because of the automatic revocation and at least 80,000 has to reapply, the senators said.

So far, the IRS has processed and reinstated the tax-exempt status of fewer than 51,000 of those.

"Because the IRS does not adequately notify charities as this deadline approaches, many nonprofits discover the problem only after their names appear on a list of organizations that have already lost their status, after it is too late to act," Coats said in a statement.

"Some never realize it at all."