What the Taxpayer Bill of Rights could mean for nonprofits

IRS staffing shortfalls have contributed to delays in nonprofits receiving their tax-exempt status.
Date Published
01/14/2014

Nina Olson, National Taxpayer Advocate, recently released her 2013 report to the U.S. Congress with the underlying goal of pushing the legislative body to enact the Taxpayer Bill of Rights. The proposal aims to reinvigorate the Internal Revenue Service after 2013, which was a year full of setbacks during which the agency saw its share of scandals. This legislation would have a direct effect on the fundraising efforts of nonprofit organizations, as well as other tax-exempt groups as they apply to the IRS to receive 501(c)(3) status and other designations.

IRS facing shortfalls
Charitable enterprises that apply for tax-exempt status have faced changes in the way the IRS handles processing stemming from budgetary restrictions, according to The Chronicle of Philanthropy. This has led to an agency that doesn’t have the requisite staff necessary dedicated to handling nonprofit applications, resulting in a backlog of approximately 66,000 organizations waiting to hear back about their submitted paperwork for tax-exemption or to be reinstated.

According to Olsen’s report, this is a significant increase over previous years. The backlog is quadruple the numbers reported in 2010 and triple those found in 2011. At the same time, nonprofits are frequently told by the IRS that specialist reviews can take up to 18 months to be assigned, which can result in uncertainty and angst for organizations that depend on tax-exemption to sustainably achieve their project goals and mission.

Many nonprofits’ hands are tied
The Chronicle indicated that the government tax agency revoked the tax-exempt status of nearly 550,000 nonprofit organizations – 9,000 in error – after Congress made changes to the way philanthropic groups must report to the IRS. Many mistakes result from the IRS misidentifying organizations that are affiliated with a parent enterprise, which contain the tax records for all associated groups.

Without sufficient staff levels to address the increasingly large number of nonprofits filing paperwork to reassert their tax-exempt status, both the IRS and charitable groups are put at a disadvantage. Nonprofits largely depend on not having their revenue taxed by the government so that they can do the most good with the donations they receive. If the amount of money that individuals contribute is lessened because of excessively long application cycles, the communities that nonprofits serve are those which will suffer the worst detriment.

Meanwhile, nonprofit management software can help organizations maintain orderly donor records and other back office functions, which leaves more time to focus on fundraising campaigns, as well as ensure their status with the IRS is updated.

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