WASHINGTON – More than 4,000 Arizona nonprofits were stripped of their tax-exempt status this week by the Internal Revenue Service, as the agency purged its rolls of more than 275,000 organizations nationwide that failed to keep their tax-exempt status up to date.
The IRS believes most of the organizations are defunct: In Arizona, the list included everything from Masonic lodges and PTAs to the Military Order of the Cootie.
“This whole IRS effort is to get them off the books,” said Bill Brunson, an agency spokesman. He said nonprofits that have not filed may not be aware of recent changes to the law, or they are just not operating.
But some affected nonprofits are very much alive.
The Miami Food Bank in Gila County was taken by surprise when it appointed a new financial secretary who informed it of the changes to the tax law. It cost the food bank about $200 to file and get its nonprofit status back — a large piece of the agency’s small operating budget.
“It’s a big hardship,” said the Rev. James M. Nelson, the chair of the food bank’s board. “We were forced into it.”
A 2007 change in federal law required all non-profit organizations to file documents updating their nonprofit status. Small groups like the Miami Food Bank had previously been exempt from that requirement.
A second part of the law strips the tax-exempt status of those groups who have not filed in three years. Lawmakers assumed that if these groups have not filed in three years they were defunct, according to information from the IRS.
The agency stressed in a news release that it made extensive efforts to contact these groups over the past three years, in order to keep active non-profits from losing their status.
The Alliance of Arizona Nonprofits said it has been trying to inform organizations in the state of the law change for the past few years.
“We are not being critical of the IRS, but we were concerned that there were legitimate organizations that could lose their status,” said Patrick McWhortor, alliance CEO and president.
But McWhorter did say that the recent changes have made his organization’s job easier by eliminating nonprofits that the advocacy group may have tried to contact in the past.
“It gives us a much clearer picture of how many organizations are operating,” he said. “In general, we are in favor of these changes.”
Since the IRS action Wednesday, McWhortor said the number of Arizona nonprofits has dropped from 22,000 to about 18,000. That number does not include churches, which do not have to file for a federal or state tax status.