• National Taxpayer Advocate Recommends Statute of Limitations on Revocation of Tax-Exempt Status
  • January 14, 2011 | Author: Jacob I. Friedman
  • Law Firm: Proskauer Rose LLP - New York Office
  • On the last day of 2010, the National Taxpayer Advocate, in its tenth annual report to Congress, recommended that Congress enact a statute of limitations on revocation of a charity’s tax-exempt status, to run concurrently with the current period of limitation on assessments. That period generally is (absent fraud, tax evasion or non-filing) either three or six years.  (This specific recommendation appears on page 391 of the report). 

    Under current law, a charitable organization could face revocation of its tax-exempt status and a corresponding assessment in current years based on an audit of years that are closed for purposes of assessment (even though the charitable organization may have met all the requirements to maintain its tax-exempt status in the years open for assessment).

    The National Taxpayer Advocate concluded that in light of the far-reaching impact that revocation has on charitable organizations and third parties, such as donors, it would only be fair to institute the protective safeguard of a statute of limitations on revocation.

    The report includes an interesting quote from a 1922 Supreme Court case, United States v. Oregon Lumber Co., 260 U.S. 290, 299-300: “Statutes of limitation are vital to the welfare of society, stimulating activity, punishing negligence, and protecting parties from the prosecution of state claims, when, by loss of evidence from death of some witnesses, and the imperfect recollection of others, or the destruction of documents, it might be impossible to establish the truth.”

    The Office of the National Taxpayer Advocate was established by Congress in 1996 to help taxpayers resolve problems with the IRS and recommend changes that will prevent the problems in the future.