Posted by Jon Sparkes on September 19, 2017
Over 200 UK charities have had their US tax exemption automatically cancelled without them even being told, meaning that tax breaks on gifts made to these charities by US donors face being reduced.
There are a total of 218 UK charities so far with revoked US tax status on a list produced by the Internal Revenue Service (IRS), for failing to complete US returns for three consecutive years. The IRS did not contacted the charities directly.
Affected UK charities that have US interests should check to see if they appear on the IRS list (see below) as they could face higher US withholding taxes on their dividend income and on some capital gains. Where they do appear on the list, they can take corrective action, but not before weighing up the professional costs of doing so.
Such professional costs will include filing fees for all forms not previously filed, together with appropriate late filing penalties. This can be weighed up against the likely US withholding taxes that will be incurred from doing nothing, such taxes not being creditable against UK tax.
UK charities seeking backdated reinstatement that have not previously been aware of their entitlement to zero US withholding tax on dividends, may be able to reclaim tax from earlier years.
Clearly, professional advice should be sought before taking any action, or before choosing to take no action, in order that the costs of any decision can be accurately computed.
If you would like to discuss the issues raised in this article, please contact a member of our Charities Team.