IRS Non-Filer Automatic Revocations: Practical Implications to the Sector and Pre-Grant Due Diligence. 28 June 2011

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1 IRS Non-Filer Automatic Revocations: Practical Implications to the Sector and Pre-Grant Due Diligence 28 June , GuideStar USA, Inc. All Rights Reserved. This information is copyrighted subject matter owned by GuideStar USA and is protected by United States and international copyright law. 1

2 Today s Facilitators Chuck McLean Vice President, Research Pamela Jowdy Senior Product Manager, GuideStar #revocations 2

3 Participant Poll #revocations 3

4 Today s Objectives 1. Non-Filer Automatic Revocation List Background and primer Revoked organization universe What is my responsibility? Resources 2. Your GuideStar Experience Registered Users GuideStar Premium GuideStar Charity Check Product Overview Revocations 3. Questions and Discussion 4

5 Non-Filer Automatic Revocation List: Background, Sector Impact and Next Steps Chuck McLean Vice President, Research #revocations 5

file; now must file 990-N First deadline: 5.17.10 for NPOs with FYE date of 12.31.09 IRS granted temporary relief extension until 10.15.

6 Background and Primer Failure to file annual return for 3 consecutive years Pension Protection Act of 2006 provision Forms 990-N, 990-EZ, 990 or 990-PF Religious organizations are still exempt from filing requirement Many NPOs with annual gross revenues < $25K previously not required to file; now must file 990-N First deadline: for NPOs with FYE date of IRS granted temporary relief extension until IRS states that distributions to at-risk organizations allowed until official nonfiler list published in 2011 At Risk Organizations: 6

7 The List: June 9, 2011 Initial Publication: 275K organizations exempt status revoked The IRS will continue maintaining this list, updated monthly Available in two formats, Adobe Acrobat and Microsoft Excel Divided into separate lists for each state, the District of Columbia, and all other territories and countries. Provides the name, Employer Identification Number (EIN), organization type (subsection code), last known address provided to the IRS by the organization, and the effective date of revocation and date posted on irs.gov. The effective date of revocation is the original filing due date, without regard to extensions, of the third annual required return or notice that was not filed. In addition, a single list of all revoked organizations on the Nonfiler Revocation List will be available in ASCII delimited text format. #revocations 7

8 Who Got Revoked? By Organization Type Based on available GuideStar data: 57% 501(c)(3) public charities 9% 501(c)(3) private foundations 9% Civic Leagues, Social Welfare Associations #revocations 8

9 Who Got Revoked? By Organization Revenue Based on available GuideStar data: More than 75 percent of those revoked had annual revenues of less than $25,000 The top 100 largest orgs previously reported revenue ranging from $4 million to just over $400 million. The top three largest nonprofits who had their taxexempt status revoked last reported more than $200 million in revenue. The 50 largest nonprofits who had their tax-exempt status revoked formerly reported more than $10 million in revenue each. 9

Who Got Revoked? By Sector and Geographical Location Based on GuideStar available data: Nearly half (48 percent) of the revoked nonprofits fell into the "unclassified" category.

10 Who Got Revoked? By Sector and Geographical Location Based on GuideStar available data: Nearly half (48 percent) of the revoked nonprofits fell into the "unclassified" category. Public services organizations made up the next-largest (21 percent) group, followed by educational organizations (7 percent) and public, societal benefit nonprofits (7 percent). The largest number of revoked organizations were based in California (33,733), followed by Texas (21,468), New York (19,408), and Florida (13,903). #revocations 10

11 What s My Responsibility? Donors who wish to deduct a charitable gift on their taxes need to confirm that the nonprofit receiving the donation is still tax exempt before making the contribution. Nonprofits appearing on the list must now file a federal income tax return and pay federal income taxes, and if they previously accepted tax-deductible contributions, they no longer can do so. Rev Proc : how to file for reinstatement, reduced application fees, etc. Foundations and Grantmakers need to confirm that a grantee or gift recipient does not appear in the list before making a payout. #revocations 11

Nonprofits Not On The List Opportune time to reach out to donors, funders, and other constituents and assure them that you are in good standing with the IRS.

12 Nonprofits Not On The List Opportune time to reach out to donors, funders, and other constituents and assure them that you are in good standing with the IRS. Suggest that your supporters consult GuideStar or the Automatic Revocation of Exemption List to ensure that the other nonprofits they give to are still exempt. Update and share your GuideStar Exchange profile with your supporters to show your commitment to transparency #revocations 12

13 What We re Monitoring Helpful links and resources IRS Nonfiler Homepage and Revocation Landing Page FAQS Filing requirements and thresholds Filing due dates and extensions IRS Business Master File IRS Publication 78 GuideStar Revocation Resource Center 13

14 Your GuideStar Revocation Experience What to expect from your Registered, Premium and Charity Check Experiences Pamela Jowdy Senior Product Manager #revocations 14

15 Which Type of User Am I? GuideStar Premium versus Registered User Today s Demonstration Progression: 1. Registered Users 2. Premium Subscribers 3. GuideStar Charity Check 15

16 Registered User Experience Revocations Demonstration Pamela Jowdy Senior Product Manager GuideStar #revocations 16

Advanced Search Data Depth Research Tools Non-profit search People search Affiliation Type Other Documents: Letters of Determination

17 GuideStar Premium v3.0 Advanced NPO Research and Analysis Search and Refinement Tools Did You Mean Related Keywords Search Refinement Sort Options Advanced Search Data Depth Research Tools Non-profit search People search Affiliation Type Other Documents: Letters of Determination Audited Financials Annual Reports Knowledge Base Archive Articles, newsletters 16 Disciplines 10 year long tail Analysis Tools Saved Organizations Saved Searches (People and Organizations) Organization Download Select and Compare Financial Charts 17

18 Charity Check: Pre-Grant Due Diligence IRS Pub 78 and IRS Business Master File To-Do: Two Unique Due Diligence To-Do s: Data Source: Verify Current Charitable Status Publication 78 and Internal Revenue Bulletin Identify Supporting Organizations with 509(a)(3) status IRS Business Master File #revocations 18

19 Why Verify: IRS Data Sources Pub 78 and Internal Revenue Bulletin Establish Tax Deductibility and Verify Current Charitable Status IRS Publication 78: Also known as Cumulative List of Organizations Includes all organizations to which charitable contributions are tax deductible Current tax-exempt status, percentage of contributions that are tax deductible Deductibility limitations Published quarterly IRS Internal Revenue Bulletin: Also known as the IRB Lists organizations whose charitable status has been changed or revoked Updated weekly Rev. Proc , C.B. 759 Sec.3.01 and Sec.3.02 states that grantors may rely on the classification of an organization listed in or covered by Publication No. 78. #revocations 19

20 Why Verify: IRS Data Sources IRS Business Master File Determine 509(a) Status IRS Business Master File: Lists all tax-exempt organizations registered with the IRS Published monthly Includes reason for non-private foundation status, aka public charity classification Reason for non-private foundation status = 509(a) status 509(a)(1) and 509(a)(2): A public charity that receives a substantial amount of public support to fund its operations 509(a)(3): Supporting Organization A public charity that provides support to one or more publicly supported organizations Must demonstrate that is has a particular type of relationship with the organization it supports New Foundation Status codes coming in 2011: 509a3 Type I 509a3 Type II 509a3 Type III 509a3 Type III Functionally Integrated #revocations 20

21 Internal Revenue Code Grants Administration Milestones GuideStar Charity Check 100% compliant with Revenue Procedures and August 2006 March 2007 June 2009 June 2011 Internal Revenue Code Tax Reform Act The legal framework for the regulation of private foundations and public charities is established Pension Protection Act New requirements on grants to certain supporting organizations [509(a)(3)] Definition of Type III supporting organizations IRS FAQ on Business Master File Reliance Allows grantors to use third party resources to obtain required IRS BMF information about a potential grantee s charity classification under section 509(a)(1), (2) or (3) IRS Revenue Procedure Formalizes March 2007 FAQ Precedential instrument upon which compliance and grantmaking teams can rely IRS Revenue Procedure Failure to file automatic revocations Supersedes and modifies Rev Proc and /irs-drop/rp pdf Definition of Type III functionally integrated supporting organizations 21

GuideStar Charity Check An Integrated, One-Stop Verification Solution How it Works FTF Revocations Incorporates Weekly Internal Revenue Bulletin Marries Publication 78 data with IRS Business Master

22 GuideStar Charity Check An Integrated, One-Stop Verification Solution How it Works FTF Revocations Incorporates Weekly Internal Revenue Bulletin Marries Publication 78 data with IRS Business Master File data Married, but never modified Pub 78 Additions included OFAC verification included (organization level) 501p suspension messaging included Parent Subordinate matching (BMFPub 78) Group Exemption Messaging year track record of consuming and managing IRS data

GuideStar Charity Check An Integrated, One-Stop Verification Solution What it Delivers Date and time stamp Electronic or hard copy documentation Verify Current

23 GuideStar Charity Check An Integrated, One-Stop Verification Solution What it Delivers Date and time stamp Electronic or hard copy documentation Verify Current Charitable Status Latest Quarterly Pub 78 Weekly Bulletin Date EIN IRS BMF Date Reason for Non-Private Foundation Status Identify Supporting Organizations with 509(a)(3) status 23

24 GuideStar Premium and GuideStar Charity Check Revocations Demonstration Pamela Jowdy Senior Product Manager GuideStar #revocations 24

25 Common Questions 1. How quickly does GuideStar publish IRS revocations once posted? 2. Can I search for revoked organizations by EIN? 3. Will printable and PDF reports have a flag for revoked organizations? 4. Can I set up alerts or manage a watchlist? 5. Any progress on identifying Supporting Organization Type? 6. Do Premium Pay As You Go Reports include revocation information? 7. Which date is the date I need to be most concerned about as a grantor? The IRS posted date or effective date? 8. Can I set up alerts or manage a watchlist? 9. Can grantors still rely on Letters of Determination? 10. What are my verification options if I do not subscribe to Charity Check? 11. Will the Charity Check web service 25include revocation data?

26 Premium Pay As You Go Single reports without a subscription commitment 26

27 Effective Date vs. Posted Date Automatic Non-Filer Revocation List Source: 27

28 Alerts and Watchlists Charity Check v2.0 Preview 28

29 The Letter of Determination Isn t this good enough? What it is Static, historic snapshot Only accurate at time of issuance Confirms 501c3 status What it is NOT Does not account for changes in charitable status since date of original issuance Some letters include SO Type (2006) IRS suspended letters for Type III functionally integrated SOs Does not reflect automatic revocations starting in

separately for changes and / or revocations Cannot search by EIN No date or time stamp Does

30 IRS Publication 78 Grantmaker Verification Options IRS Publication 78 Online IRS website provides search functionality for Pub 78 Does not include IRB weekly updates; must search separately for changes and / or revocations Cannot search by EIN No date or time stamp Does not include subordinates covered under group exemption Source: 30

31 IRS Internal Revenue Bulletin Grantmaker Verification Options IRS IRB Includes status changes and revocations Published weekly in pdf and html format Does not include EIN Not searchable Source: 31

32 IRS Business Master File Grantmaker Verification Options IRS Downloadable Business Master File Draft of manual solution for 509(a)verification directly from IRS BMF #revocations 32

33 Charity Check Web Service XML* Data and PDF Report Delivery *Extensible Markup Language = easy way to share structured data via ether 33

34 Contact Information GuideStar Revocation Resource Center 34

35 Appendix 35

36 GuideStar Charity Check Not Verified in Publication 78 36

37 GuideStar Charity Check Not Listed in IRS Business Master File 37

38 GuideStar Charity Check OFAC Organization: Results 38

39 GuideStar Charity Check OFAC Organization: Report 39

40 Search Results Messaging 40

41 Report Pages 41

42 GuideStar Charity Check Report Report, Printable and PDF 42

Grantmaker Due Diligence in the Pension Protection Act Era:

Grantmaker Due Diligence in the Pension Protection Act Era: How to identify supporting organizations and align your grants administration process with the 21 st century tax code 15 February 2011 2011,