Griffith Reintroduces Bill to Protect Small Non-Profits from Losing Tax-Exempt Status

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Congressman Morgan Griffith (R-VA) announced that he has reintroduced H.R. 359, which would protect small non-profits from losing their tax-exempt status due to bureaucratic red tape. Congressman Griffith made the following statement:

“I believe that we benefit tremendously from the work of local non-profits. These organizations should be able to do their good work without unnecessary hassle from the IRS. My bill makes a common-sense fix to address the unintended consequences of a law never designed to affect the tax-exempt status of small non-profit subsidiaries. By waiving user fees for applications to reinstate tax-exempt status, this bill lets local non-profits devote more of their resources to their communities.”

Background

In 2006, Congress passed the Pension Protection Act (PPA). As a result of this law, beginning in 2008, small tax-exempt organizations that previously were not required to file returns were now required to file electronically the Form 990-N, also known as the e-Postcard, annually with the Internal Revenue Service (IRS). Organizations that do not file the notice for three consecutive years automatically have their tax-exempt status revoked.

The PPA was designed to prevent pension fraud of the scale seen at Enron, not monitor small fire departments and civic clubs. As a result of this change, over 500,000 small tax-exempt organizations have had their statuses revoked. Many of the affected organizations are small, local chapters of parent organizations that have tax-exempt status. In order to be reinstated, these subsidiaries are forced to jump through challenging bureaucratic hoops, including filling out a considerable amount of paperwork and paying a penalty of up to $850.

Under H.R. 359, an organization’s tax-exempt status shall be reinstated and the fine waived if it can show three things: (1) it had fewer than 50 members during the three years it did not file; (2) it has now filed a return or notice; (3) it is a subsidiary of a tax-exempt parent organization.

Michael T. Chrisley, executive director of Ruritan National, a civic organization with 26,000 members in 24 states, described how current law affects organizations like his: “Small nonprofit organizations who fail to file the 990 tax form are being financially penalized and their tax exempt status is being revoked. This goes beyond their limited ability to serve their communities. Often the penalties are higher than their annual receipts. In the end we are losing the very organizations which provide stability and support in the community. When nonprofit fire departments, rescue squads, cemetery associations, tourism councils and civic groups have to go out of business we know this measure has gone too far. The legislation that was introduced to protect pension plans and individual investors has ended up hurting exactly the groups who are least able to comply.” –Submitted by Kevin Baird