Don't Mess With Taxes

Is the charity you just donated to still on the Internal Revenue Service's OK list? The answer is important not only to donors, but also to the nonprofits.

If the answer is no, it means that individual taxpayers' contributions to those groups are not tax deductible. As for the organizations, they may be required to pay income taxes.

The IRS keeps track of charities and when they fail to meet the tax requirements, it revokes the tax-exempt status of the noncompliant groups. 

Apparently, though, Uncle Sam has had some issues with its tracking process.

A recent Treasury Inspector General for Tax Administration (TIGTA) found that the IRS may have missed 15,000 groups that lost tax-exempt status.

That figure is this week's By the Numbers feature.

To the IRS' credit, it asked TIGTA to do the review.

And it looks like issues discovered during the process have been corrected.

Asking for help: The IRS sought an assessment of just how ready it was to implement new provisions that are part of the Pension Protection Act of 2006.

That law, known by most of us as health care reform or Obamacare, now requires tax‑exempt organizations that previously weren't required to file an annual information return because their gross receipts were under a certain amount to now make electronic filings to the IRS.

There are no monetary penalties for failing to comply, but organizations that don't provide this information or fail to file an annual information return for three consecutive tax years will have their tax‑exempt status automatically revoked.

Room for improvement: In most cases, the IRS appropriately identified organizations that did not file a return or notice for three consecutive years. 

TIGTA found, however, that the IRS did not potentially identify more than 15,000 organizations that failed to file for three consecutive years.  As a result, these organizations were not informed that their tax‑exempt status had been automatically revoked.

In addition, the IRS did not clearly inform organizations on how to regain their tax-exempt status if they were still operating.

The review by the IRS oversight group was conducted at Tax Exempt and Government Entities (TE/GE) offices in Washington, D.C., and Ogden, Utah, between June and September 2011. During that time, IRS computer programming was still being updated so the report, says TIGTA, may not reflect the most current status of the automatic tax-exempt status revocation process.

TIGTA also noted  that throughout the review that whenever its examiners raised issues, the IRS immediately addressed them.

"The tax-exempt status of an organization is very important to its existence," said TIGTA Inspector General J. Russell George in a statement accompanying the report's release. "The IRS must ensure it makes the correct call. I am pleased that, in general, the IRS is accurately identifying organizations whose tax-exempt status has been revoked. While we have identified some areas for improvement, the IRS is overall, getting the job done."

But just in case, be sure you double -- and triple -- check whether any charity to which you donate is still on the IRS approved list. It could make a big difference to your personal tax return.

You also might find these items of interest:

• Tax donation rules
• Charitable giving reached $291 billion in 2010
• Deductions demand documentation