Congress Urged to Set Time Limit on Revoking Tax-Exempt Status

Congress should enact a statute of limitations on decisions to revoke the tax-exempt status of nonprofit organizations, the national taxpayer advocate says in her annual report to Congress.

The advocate, Nina E. Olson, says current law allows the Internal Revenue Service to revoke a group’s tax-exempt status for any past years, even when too much time has passed to assess retroactive taxes.

She suggested setting the limit at three years, or six years if the organization has omitted substantial information from its tax return. No time limits would apply in cases of fraud, tax evasion, or failure to file returns.

Ms. Olson also urged Congress to simplify the tax code, partly by eliminating many existing tax breaks. She did not specifically propose changing the charitable deduction but said “everything must be put on the table.”