On July 26, 2010, the Internal Revenue Service announced a one-time relief program for small nonprofit organizations at risk of losing their tax-exempt status due to their failure to file required annual returns. "We are doing everything we can to help organizations comply with the law and keep their valuable tax exemption," IRS Commissioner Doug Shulman said. "So if you do not have your filing up to date, now's the time to take action and get back on track."
Organizations with Annual Gross Revenue Under $25,000
The Pension Protection Act of 2006 enacted annual tax filing requirements for small tax-exempt organizations effective for tax years beginning on or after January 1, 2007. In response to the legislation, the IRS created Form 990-N, Electronic Notice (e-Postcard), that small tax-exempt organizations must file annually.
For purposes of Form 990-N filing, small tax-exempt organizations are those organizations with annual gross receipts of $25,000 or less. Prior to the filing requirement mandated by the Pension Protection Act of 2006, small organizations were not subject to annual filing requirements of the IRS. Form 990-N is due by the 15th day of the fifth month after the organization's tax year-end.
The IRS will not assess a penalty if an organization files a Form 990-N late; however, it will revoke the organization's tax-exempt status after three consecutive years of nonfiling. Organizations that were required to file Form 990-N for the past three consecutive years (2007, 2008, 2009) had until May 17, 2010 to file Form 990-N.
New Relief for Form 990-N filers
The IRS has provided relief for small exempt organizations that failed to file their 2007, 2008 and 2009 Forms 990-N by May 17, 2010. Organizations that were required to file Form 990-N, but have not done so, can visit the IRS website, www.irs.gov, and electronically file the 990-N by October 15, 2010 without the fear of losing their tax-exempt status.
Filing Form 990-N is a simple process and takes only minutes. The form requires eight items of basic information about the filing organization including name, address, EIN, tax year, the name and address of a principal officer, website address, and confirmation that the organization's gross receipts are normally $25,000 or less.
Organizations with Annual Gross Receipts of More Than $25,000
Tax-exempt organizations having gross receipts of more than $25,000 are required to file either Form 990-EZ or Form 990. Tax-exempt organizations that are eligible to file Form 990-EZ are those having annual gross receipts of more than $25,000 but below the Form 990 threshold as set by the IRS. An organization that was required to file Form 990-EZ but has not filed its 2007, 2008 and 2009 returns is also at risk of losing its tax-exempt status.
Relief for Form 990-EZ Filers
Form 990-EZ filers that have failed to file required returns for 2007, 2008 and 2009 are eligible to seek relief under a new voluntary compliance program (VCP). Under the VCP, organizations may file outstanding returns by October 15, 2010, paying a compliance fee, and submitting a signed checklist agreeing to the terms of the VCP. Compliance fees are based on the organization's 2009 gross receipts, and range from $100 to $500. The checklist and compliance fee schedule are available at www.irs.gov.
No relief is available for larger organizations that are required to file Form 990 or for private foundations that file Form 990-PF.
Is Your Organization at Risk?
The IRS has posted a list of names and last-known addresses of organizations at risk of losing their tax-exempt status. To view the list of organizations located in Pennsylvania and Ohio, click here.
The list will be maintained on the IRS website until October 15, 2010, at which time the tax-exempt status of nonfilers will be revoked by the IRS for organizations that have not filed the required information.
If an organization loses its tax-exempt status, it will be treated as a taxable entity. Donations to the organization will no longer be tax-deductible. In addition, the organization will have to apply for federal tax exemption, which entails completing Form 1023 and paying a filing fee.
In 2011, the IRS will send revocation letters and will post a list of exempt organizations that have had their status revoked.
If you have any questions or concerns regarding the relief program offered by the Internal Revenue Service or nonprofit tax compliance, please feel free to contact a member of the Schneider Downs Nonprofit Service Group.
Schneider Downs provides accounting, tax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.