Nonprofits face many business challenges these days, including navigating the virtual work environment, maintaining revenue goals, and continuing to redefine and evolve their programs and events post-Covid. Even tasks that might be considered relatively straightforward, such as changing their legal name, can present an unexpected challenge for some tax-exempt organizations. Whether a nonprofit is going in a new direction or refreshing its branding, it will likely change its name at some point in its lifecycle. At that time, it will also need to update the Internal Revenue Service (IRS) regarding the change.
A name change was once considered perfunctory and was accomplished by checking the “name change” box on Form 990 and writing in the new name. Then, a copy of the updated state incorporation documents were attached to show the IRS that the name change was processed by the state corporation commission governing the nonprofit corporation. The return would be scanned and entered, and the name would be updated in the IRS database.
That was until the Taxpayer First Act was enacted July 1, 2019, which required all tax-exempt organizations to electronically file Form 990s (with very few exceptions). Such a mandate created difficulties for name-change filers that could no longer attach state documentation using certain e-filing software. This, combined with diminished resources due to higher-priority IRS initiatives, has resulted in dramatically slower processing time and reliability for name-change requests. The turnaround time on such requests is currently 6-10 months, with some nonprofits waiting up to two years.
A name mismatch in the IRS database creates problems for nonprofits trying to fundraise. Often donors look up the nonprofit in the IRS system or in the exempt organization Business Master File. Showing a different name results in delay in funding, and in some extreme cases, financial insolvency of the nonprofit and closing down operations.
It is now recommended that either the nonprofit or its attorney or CPA representative fax a letter to Customer Account Services explaining the name change and attaching the requisite documentation. After six weeks of processing time, the nonprofit should then request an affirmation letter showing the new name. The affirmation is helpful because third parties, such as state tax or attorney’s general offices, often request evidence of the name change when processing exemption requests or charitable solicitation filings.
The IRS is aware of the issue and is working with practitioners to attempt to resolve it. One possible solution might be to create a dedicated name-change form that could be electronically filed and automatically added to the IRS system. Until a more permanent process is adopted, nonprofits should plan ahead for name changes and temper expectations for how long the process might take. Alternatively, the Taxpayer Advocate is a good resource for tax-exempt organizations that have experienced hardship due to inaction by the IRS to tap into.
