On June 9 the Internal Revenue Service published a list of 275,000 organizations whose federal tax-exempt status had been automatically revoked. The provision triggering the revocation had been on the books since the Pension Protection Act of 2006, but its three-year clock did not begin running until tax year 2007, and the first cohort of affected organizations did not become officially delinquent until late 2010.
Before the Pension Protection Act, very small nonprofits — those with annual gross receipts of $25,000 or less — had no annual federal filing requirement at all. The Act created a new electronic postcard return, the Form 990-N, that these small organizations were required to file each year. Failure to file for three consecutive years would result in automatic loss of exempt status.
Who was on the list
An analysis published the following month by the Urban Institute found that the revoked population skewed heavily toward dormant or never-active entities — community groups whose founding volunteers had moved on, neighborhood associations that had quietly dissolved, religious congregations that had merged or closed. The typical revoked organization had not filed any return in over a decade.
But the list also caught a meaningful number of operating nonprofits that had simply not understood the new filing requirement. Veterans posts, parent-teacher organizations, small ethnic and cultural societies, and rural fire and rescue auxiliaries appeared on the list in numbers that suggested communications failures rather than organizational dissolution.
The reinstatement process
The IRS published a reinstatement procedure shortly after the list. Organizations that had been revoked solely for failure to file the 990-N could regain status by filing all back returns and paying a reduced application fee. Larger organizations that had missed full 990 or 990-EZ filings faced a more onerous path requiring a new application for exempt status and, in some cases, retroactive reinstatement applications with reasonable-cause statements.
Within the first year of the reinstatement program, roughly thirty thousand organizations were restored. The remainder either dissolved formally, continued operating without federal exempt status (at the cost of becoming taxable corporations), or persisted in a regulatory limbo that would not be resolved until they tried to seek a grant or open a bank account.
Long-term effect on the dataset
For researchers and journalists who relied on the IRS Business Master File as a census of US charitable organizations, the revocation meant that the file would never again contain the names of dormant entities. The official US nonprofit count, which had crested above 1.6 million in 2010, fell sharply and has fluctuated within a narrower band since.
That cleanup arguably improved the quality of the dataset. It also had the effect of erasing from official records a substantial archive of small, mostly local organizations whose activity had been part of the texture of community life for decades.