A long-time friend of mine, H. Robert Showers, Jr., practices law in the Washington D.C. area. I’ve known for years that Rob writes and speaks nationally about nonprofit and church law, but I just recently learned about a nonprofit that he founded, NonprofitChurchLaw.org. If you’re involved in nonprofit or church operation or governance in any way, you’ll want to add this website to your favorites.

I learned about the website at a workshop Rob recently presented at a national conference. In his workshop, Rob spoke about legal hotspots for nonprofits and churches. One of the hotspots is related to the new requirement that ALL tax-exempt organizations other than churches and church-related organizations must now file some version of Form 990 annually. Organizations that fail to file for three consecutive years will automatically lose their tax-exempt status. As a result of this new law, more than 275,000 nonprofits lost their tax-exempt on October 15, 2010. (We’ve written about this previously, so hopefully the news about this filing requirement does not come as a surprise to you.)

You can find out if your organization’s tax-exempt status has been revoked by going to www.IRS.gov/charities. If your organization’s name is on the
“Automatic Revocation of Exemption” list, be aware that your donors can no longer deduct their contributions to you. Also, know that we would be happy to help you in re-applying for tax-exempt status. This is a task you will not want to put off, as any income received between the date of revocation and the date of reinstatement may be taxable.

On a related note, Rob shared that the IRS believes that most small nonprofits and churches are violating the tax-exempt requirements. As a result, the IRS has not only published increased guidance to assist organizations in complying with the requirements (we’ve also written about that), but it is making it tougher for nonprofits to acquire tax-exempt status in the first place. For example, each successive version of the Application for Recognition of Exemption has contained increasingly detailed questions about matters such as governance policies and sources of support.

In addition to the change in IRS focus, Rob reported that Senator Charles Grassley’s new Senate Nonprofit and Church Law Commission is exploring a number of significant changes, such as:

• Whether the income tax exclusion for clergy housing allowances should be limited or eliminated;
• Whether churches should have to file the same detailed annual information that other nonprofits have to file;
• Whether there should be an excise tax imposed on nonprofit organizations, not just individuals, that engage in excess benefit transactions;
• Whether the rule preventing the IRS from randomly auditing churches should be repealed;
• Whether the prohibition against churches and other Section 501(c)(c3) nonprofits engaging in political campaigns should be modified or repealed;
• Whether we need new laws clarifying the tax treatment of “love offerings” paid by church attendees to ministers; and
• Whether the “rebuttable presumption” of reasonableness for transactions between nonprofits and their leaders should be modified or eliminated.

For the most part, these changes are meant to address abuses by large organizations. If adopted, however, some of them have the potential of significantly impacting the bottom line of small churches and their pastors.