Over 64,000 Tax-Exempt Nonprofits Owe Millions in Federal Taxes

NEW YORK (MainStreet) — More than 64,000 tax-exempt nonprofits owe the federal government, big time. While churches, charities, civic and business organizations, fraternal societies and credit unions don't have to pay income taxes, those with compensated employees are required to withhold and pay payroll taxes. But more than $875 million is past due, more than one quarter of which dates back to tax periods prior to 2007, according to a report issued by the Treasury Inspector General for Tax Administration (TIGTA).

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Without naming names, TIGTA says more than 1,200 tax-exempt organizations owed a lion's share of the total: nearly $656 million, each with a tax tab exceeding $100,000 – five owed more than $10 million.

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And while these nonprofits skate on their tax liabilities, they still hold their hands out for government grants. The Government Accounting Office (GAO) says more than 1,200 of these payroll tax-dodging tax-exempt organizations received more than $14 billion in direct Federal grants in 2005 and 2006 alone. No doubt they've been collecting ever since, as well.

Of course, most nonprofits pay their taxes; only about 4% are past due. In fact, nine organizations owed back taxes that were 10 years or more in arrears, totaling $5.5 million.

And these nonprofits ignore their federal obligations without fear of losing their tax-exempt status. "Federal statutes do not authorize the IRS to revoke tax-exempt status based on an organization's failure to pay payroll taxes," TIGTA's report says.

TIGTA compiled data on the top 25 offenders, with some surprising results.

"Our review identified that, despite receiving government payments to fund operations and being granted I.R.C. ยง 501(c)(3) status, the organizations accrued more than $25 million in Federal tax debt and top officials of some tax-exempt organizations received salaries of more than $250,000 annually," the study says.

The data revealed that the nonprofits were bloated with bad actors. Of 52 officers in the top 25 worst-offending organizations, 14 had failed to file personal tax returns to report almost $2.7 million in salaries for the three years that were reviewed. Seven officers had underreported wages on their tax returns by nearly $350,000.

During the three-year period examined, the 25 tax-exempt organizations received government payments of more than $148 million, yet had not paid more than $25 million in taxes, dating as far back as tax year 2001.

--Written by Hal M. Bundrick for MainStreet

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