TIGTA: Tax Exempt Tax Deadbeats -- Nonprofit Groups Owe the IRS Nearly $1 Billion in Payroll Taxes

The Treasury Inspector General for Tax Administration today released Some Tax-Exempt Organizations Have Substantial Delinquent Payroll Taxes (2014-10-012):

IRS records indicate that the majority of tax-exempt organizations pay their Federal taxes. However, a small percentage are not paying their taxes. More than 64,200 (3.8%) tax‑exempt organizations had nearly $875 million of Federal tax debt as of June 16, 2012. While some organizations owed minor amounts, approximately 1,200 tax‑exempt organizations owed more than $100,000 each. Unpaid taxes were often associated with multiple tax periods. For example, nine organizations each had Federal tax debt spanning 10 or more years that collectively totaled more than $5.5 million.

TIGTA reviewed 25 tax‑exempt organizations—under Internal Revenue Code § 501(c)(3)—that appeared to be among the worst examples involving unpaid Federal tax (but not representative of the population of all tax‑exempt organizations with unpaid tax). These organizations generally received government payments over a three‑year period of $148 million, including Medicare, Medicaid, and government grants; had annual revenue of almost $167 million; and owned assets of more than $97 million, but continued to not remit payroll and other taxes, including penalties and interest, totaling more than $25 million.

The Internal Revenue Code does not authorize the IRS to revoke tax‑exempt status based on an organization’s failure to pay payroll taxes, and most of the organizations that TIGTA reviewed were still recognized by the IRS as tax‑exempt as of May 2013. The Exempt Organizations function had completed several examinations but was generally not aware of the behavior of the organizations because another IRS business unit is responsible for collecting the delinquent tax debt.

• Accounting Today, Tax-Exempt Organizations Delinquent on Payroll Taxes
• Fiscal Times, Tax Exempt Groups Owe IRS Nearly $1 Billion