Monday, December 14, 2009

NYT: Charities Rise, Costing U.S. Billions in Tax Breaks

The New York Times recently reported that the IRS approves nearly all applications for recognition of tax-exempt status as a charitable organization under Internal Revenue Code section 501(c)(3), including some rather unusual groups.  The article is based on a Stanford University study that looked at 2008 applications.  What the article fails to note, however, is that over 30 percent of all applications are withdrawn, never completed, or not processed because of a lack of the required filing fee (a point the study notes both in footnote 7 and in its concluding points).  My personal, anecdotal experience from nine years of practice is that most such applications are not pursued to completion because the IRS starts asking hard questions and the applicant realizes it faces an inevitable denial or must significantly change its planned activities to obtain IRS approval, resulting in an effective denial if not a formal one.  Moreover, those applicants who pursue the process to completion often adjust their planned activities in response to IRS demands, which may in part explain the high (98 percent in 2008) approval rate for completed applications.


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