Action Being Taken to Prevent Refundable Payments of Social Security and Federal Unemployment Taxes by Charitable Organizations

GGD-76-102: Published: Feb 1, 1977. Publicly Released: Feb 1, 1977.

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Many charitable organizations are exempt by law from paying social security and unemployment taxes. However, the exemption from social security taxes can be waived if a written request or waiver is filed with the Internal Revenue Service. If a waiver was not filed and payments were made, the organization could withdraw any payments accepted over the last 3 years. Transcripts of the employment tax payments of 1,000 randomly selected charitable organizations were examined and waiver certificate files were reviewed. Taxpayer case files, pertinent statutes, and regulations were also examined.

In 1975 about 12,700 to 20,200 organizations which had not waived their exemption paid social security taxes ranging from $118 to $369 million. Because of Internal Revenue Service administrative errors, these amounts were all refundable. Legislation signed in October 1976 designed to correct the problem stated that if charitable organizations have made social security payments for three consecutive calendar quarters, they could not withdraw their money whether or not they failed to file a waiver. Pursuant to the law, the Internal Revenue Service is taking actions which will also correct the lesser problem of improper unemployment tax collections.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Commissioner of Internal Revenue should make sure that all charitable organizations are identified properly and that their waiver statuses are recorded properly. Present procedures should be revised so charitable organizations are identified at the time they officially receive tax-exempt status.

    Agency Affected:


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