IRS stamp block letters

Ten Years Later: Autorevocation, the IRS, and Exempt Organizations

by Sandra Pfau Englund on Aug 08, 2019

It’s been ten years since the Pension Protection Act of 2006 was passed requiring all nonprofit organizations, regardless of size, to annually file an IRS Form 990-series tax return or have their tax-exempt status automatically revoked by the IRS.  I took a look back at what has happened since.

  • The Pension Protection of 2006 takes effect in 2007.
  • May 17, 2010 is the first filing deadline that triggers revocations.
  • May 18, 2010 the IRS announces that it will extend the time to file the new Form 990N through October 2010 to help small organizations avoid revocation.
  • December 2010 the IRS publishes a list of 321,091 organizations at risk of losing their tax status.
  • June 2011 the IRS announces that approximately 275,000 organizations have had their tax status stripped when the IRS publishes its first list of revoked organizations.
  • The IRS has revoked about 50,000 more organizations every year since the Great Revocation of 2011, some years more (87,736 in 2013) and some years less (41,102 in 2015).
  • No appeal process of revocation is provided, even in cases where the IRS erred in making the revocation.
  • The process established by the IRS for revoked groups to get reinstated requires the filing of the complete IRS Form 1023 and the payment of the IRS filing fee of $850.
  • Thousands of organizations submit Form 1023 to get reinstated at the same time that the IRS staff is cut, resulting in long delays in getting applications reviewed.
  • The National Taxpayer Advocate, the government watchdog agency providing oversight of the IRS, sees a 450% increase in the complaints relating to the IRS Tax Exempt organizations unit.
  • The National Taxpayer Advocate in its 2013 report to Congress urges the IRS to create a new, online, short-form 1023EZ to ease the burden on small nonprofits applying for tax-exempt status. 
  • The 1023EZ is released in July 2014 providing a 5-page form that is submitted online with a reduced filing fee of $400; the filing fee is further reduced to $275 in July 2016. The short form requires no financial information, requiring only basic information about a groups’ officers and directors and confirmation that the organization read and is in compliance with the IRS eligibility checklist for using the short-form 1023.
  • The IRS appears to provide limited review of the 1023EZ with many organizations receiving notice of exemption within 30 days or less of applying.
  • The IRS list of tax-exempt organizations grows to nearly 1.6 million by the end of 2016.

In summary, the Pension Protection Act of 2006 is intended to clean-up the IRS list of exempt organizations and provide the IRS more oversight by requiring all exempt organizations to file an annual tax return.  Hundreds of thousands of organizations are revoked. Thousands and thousands of organizations apply for reinstatement. The IRS is overwhelmed with exemption requests and shortens the application and review process. The IRS list of exempt organizations grows.

In April 2010, Bob Ottenhoff, then President and CEO of Guidestar, told the New York Times that the new law, “is a good thing for the nonprofit sector, even though it will no doubt create a hardship for a pretty significant number of organizations.”  Ottenhoff was right about the hardship.  I’m not as sure about it being a “good thing”. 

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