May 24, 2010; Source: NextGov | The IRS taketh away and the IRS inadvertently giveth. We have read about the tens of thousands of small nonprofits at risk of losing their 501(c)(3) charitable status because they failed to file 990N e-postcards. At the same time, however, as the IRS sharpened its gaze looking for nonexistent public charities, as of August 2009, it accorded nonprofit status to 13,797 groups that claimed to be nonprofit organizations providing free tax advice and electronic filings of returns for low-income and elderly taxpayers.

By claiming to be nonprofits, these e-file providers sidestepped a variety of program requirements and checks that for-profit e-file providers have to follow. Based on a small sample of these nonprofit e-file providers, 19 percent were given a nonprofit designation that they didn’t merit. This isn’t a new problem. According to an Inspector General’s report in 2007, the IRS found over 1,200 e-file providers that could not be validated as nonprofits.

Based on its sampling of purported nonprofit e-file providers in 2009, Treasury has concluded that more than 2,500 of the e-file providers claiming to be nonprofits might not be nonprofit at all and that more than 1,700 that should have been reviewed for suitability as e-file providers were never reviewed. The 2010 report [PDF] suggests that this level of error, with 19 percent of the nonprofits being something other than nonprofit reflects the IRS’s improvement over conditions found in reports from 2003, 2004, and 2007.

Nonprofits have enough challenges just doing their work as it is. They don’t need the IRS allowing unverified groups to wear nonprofit togas, thus exempting themselves from proper levels of oversight.—Rick Cohen