IRS error causes 30,000 tax-exempt groups to lose status

Published 12:00 pm Saturday, November 7, 2020

BOSTON — Tens of thousands of non-profit groups were stripped of their coveted tax-exempt status ahead of the holiday giving season because of an apparent computer error at the Internal Revenue Service.

The IRS automatically revokes the tax-exempt status of groups that don’t file required financial disclosures three years in a row. The deadline is May 15, but this year it was extended to July 15 because of the pandemic.

In a statement, the IRS said a computer error prevented tax-exempt groups from fling their required 990 forms and paperwork before the new deadline. As a result, tens thousands of church groups, youth sports leagues, veterans clubs, food pantries, social welfare groups and other non-profits had their status revoked.

Some 30,000 tax-exempt groups were affected nationwide, according to members of the U.S. House Ways and Means Committee, who asked Treasury Secretary Steve Mnuchin two weeks ago about the large number of revocations.

“We urge you to investigate this apparent error by the Internal Revenue Service and take corrective action immediately,” the lawmakers wrote. “These organizations do critically important work for our communities — especially during this difficult time for our nation — and we must ensure that the IRS is not wrongfully terminating their exempt status.”

The lawmakers said their inquiry was prompted by a questionable 20% increase in automatic revocations between May 1 and Oct. 1.

Jim Klocke, CEO of the Massachusetts Nonprofit Network, said he wasn’t sure how many charities were affected in the state, though an IRS database showed more than 600 Bay State nonprofits lost their status during the period in question.

But Klocke called the glut of revocations “a very serious issue that needs to be resolved by the IRS immediately.”

“We’re heading into the final two months of the year’s fundraising season, which is always an important time of year for nonprofits,” he said. “And this year fundraising is more important than ever, especially for groups that are helping people affected by the pandemic.”

Christian M. Wade covers the Massachusetts Statehouse for CNHI’s newspapers and websites. Email him at cwade@cnhi.com