Almost 4,000 nonprofit organizations in the Washington area are in danger of losing their tax-exempt status, according to Internal Revenue Service data reported by a nonprofit watchdog group.
The 2006 Pension Protection Act gave the IRS the authority to revoke the tax-exempt status of organizations that fail to file a tax return for three consecutive years. As the first deadline rolled by May 17, many thousands of nonprofits failed to file and many more are expected to miss upcoming deadlines, according to a recent report from the Urban Institute.
Nationwide, more than 292,000 organizations -- 18 percent of the nation's nonprofits -- could lose their tax-exempt status, the Urban Institute reported.
The new rule includes nonprofits that bring in less than $25,000 a year, which were previously exempt from filing requirements.
"Smaller organizations are at greater risk because many of them don't realize this provision applies to them," said Suzanne Coffman of GuideStar, which provided the figures on Washington-area nonprofits.
Katie Roeger, co-author of the Urban Institute report, said the IRS might have had outdated addresses for many small organizations when they attempted to notify them of the new requirements.
Esther Williams, general manager of the Washington Jazz Arts Institute, said she didn't know about the new rule until a friend told her.
"I think it's horrible that the nonprofits weren't clearly notified about it," said Williams, who told The Washington Examiner that she filed the form. IRS records still show that her organization hasn't filed it.
Should a nonprofit lose its tax-exempt status, it will have to apply again, paying a $400 application fee and paying income taxes until it is approved.
"For a lot of these smaller applications that already operate on a small budget and with the economic situation, $400 is a huge amount," Roeger said.
The 2006 provision was enacted to clear out "dead" organizations from IRS records in an effort to increase nonprofit transparency, Coffman said.
Roeger estimated that about a quarter of nonprofit organizations on the "danger" list don't exist anymore.
Nonprofits can go online to file the required 990-N tax form, which requires eight pieces of information and takes about 10 minutes to complete.