IRS and States- Registered agents, revocations, and responsibility

In the wake of the IRS’ initial announcement that more than 275,000 nonprofits had their exempt status revoked, the IRS noted new revocations will published monthly.  These revocations occur as a matter of law because a nonprofit didn’t file their  IRS 990 forms for three consecutive years and are not a discretionary act by the IRS.   

Lost in this discussion is the related impact to the states’ oversight of nonprofits and their database information.  When and how quickly will states begin to update their databases for nonprofit and exempt organizations in light of the IRS’ actions? Typically, states maintain a listing of a nonprofit corporation’s registered agent, its charitable solicitation license, and state tax-exempt status spread across two or more state agencies.  

Maintaining a current and up to date database is an ongoing challenge as anyone knows who tries to keep their Outlook information or friends’ email addresses current. The IRS sent notices to the last known address for these nonprofits which often came from a nonprofit’s 1023 application form.  These addresses often are several years old and no longer current. Because small nonprofits were not required to file an annual 990 form before 2007, this was the only available addresses.   

Many of the nonprofits are believed to be defunct.  However, some operating nonprofits  find their exempt status now revoked.  How is it their boards of directors and/or executive directors missed or ignored more than three years of IRS outreach, communication throughout the nonprofit sector, and both mainstream and nonprofit related media?

A nonprofit’s board and senior management have an ongoing responsibility to provide accurate information to both state and federal agencies to maintain their exempt status.   Similarly, once they receive a nonprofit’s current information, state and federal agencies must keep their database information accurate and up to date with their last contact with the nonprofit.   

While the number of revocations may diminish overtime as both the nonprofits and government officials work to maintain accurate information, the problem of keeping current and accurate information will be on going.  Requiring nonprofits to provide their information electronically through the use of web-based  systems appropriately places the burden on the nonprofit to provide their information accurately.  Doing so electronically should decrease the financial burden on state and federal agencies and increase their ability to include accurate information into their databases. Contact information should include the nonprofit’s email and web-based contact information, e.g. website and social media.

About Marty Martin, JD MPA

Marty Martin, JD MPA, Martin Law Firm, Raleigh, North Carolina, provides legal, tax, and training services related to nonprofit, tax-exempt, and social enterprise organizations serving local, regional, state, national, and international constituencies. He works with them throughout their lifecycle including start up, operations and management, board governance, merger, and closing down. He is an instructor with the Duke Nonprofit Management, Intensive, and Advanced Certificate in Nonprofit Leadership programs. He is a BoardSource Certified Governance Trainer. Martin is affiliated with North Carolina State University's Institute for Nonprofits. Martin served for three years on the IRS Advisory Committee for Tax Exempt and Government Entities ("ACT"). He was awarded the IRS TEGE Commissioner's Award which "is the highest honor of the Tax Exempt and Government Entities Division, and the highest honor we can personally bestow" for his service. He received a Master in Public Administration (MPA) degree with a concentration in managing nonprofit and public sector organizations from the Harvard Kennedy School and Juris Doctorate (JD) degree from Western New England University School of Law. He completed advanced training in nonprofit organizations from: Harvard Business School's Initiative on Social Enterprise; Harvard Kennedy School's Hauser Center for Nonprofit Organizations; Duke University's Nonprofit Management Program; University of California Berkeley Haas School of Business; Center for Creative Leadership; BoardSource; and the TCC Group.
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