More than 20 UK charities had US tax exemption revoked this year

31 Aug 2017 News

The US has automatically revoked the tax exempt status of 23 UK charities this year, making it more difficult for them to receive investment in the country.

US regulator the Internal Revenue Service (IRS) updated its published a list of UK charities which have failed to complete the required forms for three consecutive years. The 23 charities in question include a number of universities, the Legatum Institute Foundation, Global Heritage Fund and Education for Health. 

All had their status revoked in May and the notices were published on the website this month. 

There are a total of 218 UK charities on the list from which it has automatically revoked US tax exempt status for failing to complete required forms for three consecutive years.

The IRS has not contacted the 218 charities directly, which failed to file a Form 990-series return or notice for three consecutive years, instead publishing a list of the organisations it has revoked on its website.

'Will have more difficulty receiving tax-deductable charity contributions'

Revocation means that charities will have more difficulty receiving tax-deductable charity contributions from American donors, and are unable to claim reduced rates of US withholding tax on American investment income.

Some charities on the list may have applied for reinstatement of their exemption but few on the list have successful requests published.

Thomas Dick, partner at law firm DLA Piper, advises in an article for Tax Journal that every UK charity interested in the US should check whether it is included on the list and, if so, consider whether the costs of reinstatement outweigh the benefits.

He writes: “The cost of revocation can be calculated in terms of excess withholding tax on US dividends (15 per cent versus 4 per cent for private foundations and zero for public charities) and on gains on unleveraged US real property (up to 39.6 per cent for UK charities in trust form and 35 per cent for those in corporate form versus zero for both).

“The costs of reinstatement comprise not only the professional fees for completing Form 1023 and the filing fee of $850 (£658), but also a penalty for the failure to file information returns in the intervening years and the prospective filing ad infinitum of the annual information return on Form 990, 990-EZ, 990-N, or 990-PF, as applicable.”


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