Nonprofit Sector Reduction

This June 8th article from the New York Times puts the recent reduction of nonprofits by the IRS in context.

An excerpt.

“The I.R.S. announced on Wednesday that it had revoked the tax exemptions of 275,000 nonprofit organizations after they did not meet legal requirements to file annual tax forms.

“The action shrinks the nation’s growing nonprofit sector by roughly 17 percent, to about 1.3 million charities, trade associations, membership groups and labor unions.

“Lois Lerner, director of the division of the Internal Revenue Service that oversees tax-exempt groups, said the agency believed most of the organizations on the list were defunct, though there was really no way to know because so many of them simply could not be reached.

“In many cases, we didn’t have a good address because the last one was many years old and they hadn’t had to file since then because they weren’t big enough,” Ms. Lerner said.

“Leaders of several nonprofit groups predicted disruptions and nasty surprises as a result of the I.R.S. action, but most said it was necessary.

“In the long run, it is going to be a good thing because academics, researchers, policy makers and others will have more accurate data on the nonprofit sector,” said Tim Delaney, chief executive of the National Council of Nonprofits, a trade association.

“Until a change in federal law in 2006, only organizations with annual revenue of $25,000 or more — roughly one-third of the 1.6 million nonprofit groups — were required to file.

“That law, the Pension Protection Act, required all organizations to file returns, but because it was embedded in 393 pages of a law that otherwise dealt with pension issues, many nonprofit groups did not know that.

“When the deadline for complying with the law came last year, the I.R.S. realized as many as one-quarter of all nonprofit groups on the rolls, including charities as well as labor unions, membership organizations, trade associations and others, stood to lose their exemptions.

“The agency issued a reprieve and redoubled its efforts to alert nonprofit groups of the responsibility to file. It reached out to state nonprofit associations and umbrella groups, asking for their help in getting out the word about the new requirement, and made a big push to get local news media to report on it. “I spoke to a different TV station every 15 minutes for an entire day,” Ms. Lerner said. She said the impact of that effort and others was “quite big,” with many groups taking advantage of a program that helped them avoid revocation if they complied by Oct. 15, 2010.”