IRS: 275000 Groups’ Tax-Exempt Status Automatically Revoked

Dow Jones

By Kristina Peterson, Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- Musicians for Medical Marijuana, the Texas Koi and
Fancy Goldfish Society and the Knights of Columbus seemingly don’t have much in
common. But all have local chapters who are among the roughly 275,000
organizations that lost their tax-exempt status after failing to file annual
reports with the Internal Revenue Service for three consecutive years.

The list of all 275,000 groups, posted on the IRS’ website late Wednesday,
marks the fruition of a years-long push toward increasing transparency around
tax-exempt organizations. But the shift can be perilous for organizations whose
allure will be dimmed if they are no longer tax-exempt and donors can’t take tax
deductions based on their contributions.

The IRS said it expects most of the listed organizations are now defunct. A
website for Musicians for Medical Marijuana was no longer operable. While the
Texas Koi and Fancy Goldfish Society did not immediately return a request for
comment, its website had notice posted for its 19th annual koi and goldfish show
in October 2011.

Some groups said their local affiliates sometimes simply lagged the new
regulations. “Sometimes when it’s an all-volunteer organization, things like
this fall through the cracks,” said Patrick Korten, spokesman for Knights of
Columbus, a Catholic fraternal organization which has 14,000 councils globally,
all run by volunteers. While the national organization filed all necessary
information, some of its local councils did not. “Some of the guys who wind up
doing this kind of thing are older and they may or may not have a computer–it’s
not surprising that some of them were behind the curve on this.” The national
Knights organization is working with its local groups to fulfil the
requirements, he said.

Congress signed the new regulations into law in 2006, after the Senate Finance
Committee, then under chair Sen. Charles Grassley (R., Iowa), urged deeper
scrutiny of tax-exempt organizations. With the exception of churches, most tax-
exempt groups are now required to send the IRS information annually about their
location, how they can be contacted and some basic financial information. The
law went into effect in 2007 and any organization that didn’t send the required
data from 2007 to 2009 had its tax-exempt status automatically revoked. However,
organizations can apply to regain their tax-exempt status without paying a late
penalty through the end of the year.

Lois Lerner, the IRS’ director of exempt organizations, noted that the IRS
conducted a lengthy outreach campaign to inform associations of the new rules
and extended the original deadline by five months. Requiring better contact
information will help the IRS stay connected to these groups and provide better
disclosure to the public, she said.

“In the last several years we’ve pushed transparency quite a bit–transparency
to the public about these organizations that are receiving the benefit of tax
exemptions,” Lerner said.

Grassley said that the new rules came at the request of the IRS. “Cleaning up
its databases should help the IRS better allocate resources,” the senator said
in a statement Thursday. “If any active organizations are on the list, I look
forward to learning why the IRS couldn’t reach them or didn’t hear from them,
despite its varied attempts.”

Among such organizations is the AARP, which had dozens of its roughly 1,650
independently incorporated local chapters flagged by the list. The AARP said all
of its affiliates properly submitted the necessary paperwork.

“They should not have been on the list in the first place,” said AARP
spokesman Jim Dau. He said the organization was working with the IRS to resolve
any discrepancies.

-By Kristina Peterson, Dow Jones Newswires; 347-882-7215; kristina.peterson@
dowjones.com


  (END) Dow Jones Newswires
  06-10-110714ET
  Copyright (c) 2011 Dow Jones  Company, Inc.


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