Tax-Exempt Organizations See Substantial Increase in Automatic Revocations Due to COVID-19: IRS Missed Opportunities to Support Tax-Exempt Organization

ABSTRACT IRC §6033(j), passed in 2006, requires the automatic revocation of tax-exempt organizations that fail to file annual information returns or notices for three consecutive years. Upon reviewing the relevant legal and commentary sources, this paper argues that the statute did not anticipate the impact of COVID-19 on small tax-exempt organizations’ ability to file; as such, the statute caused significant hardship to many tax-exempt organizations whose filing ability was interrupted by COVID-19. The paper further argues that the IRS could have done more to help tax-exempt organizations but instead compounded the revocation problem by inexplicably excusing itself from a statutory requirement to warn tax-exempt organizations that were about to lose their tax-exempt status. The paper recommends solutions to these problems, including postponing the statute’s effect during the COVID-19 years, and a reversal of the IRS position regarding providing notice of imminent automatic revocation. JEL Classifications: K34; L38; M48.