If you serve on a nonprofit board or are otherwise involved with a nonprofit organization, you should be aware that hundreds of thousands of small nonprofit organizations are at risk of losing their federal tax-exempt status for failing to file 2007, 2008 and 2009 federal tax returns.
In New Jersey alone, there are more than 9,000 organizations at risk of automatic revocation of their tax-exempt status. These include sororities, fraternities, professional and business organizations, service clubs, small labor unions, athletic and sports organizations, as well as a host of charities that provide programs and assistance to children, seniors and other individuals. For a list of at-risk organizations click here.
The good news is that the Internal Revenue Service is providing a one-time relief program to help these organizations come back into compliance and retain their tax-exempt status even though they failed to file for three consecutive years. Organizations at risk should enter this relief program by October 15, 2010.
The Pension Protection Act of 2006 made two key changes affecting tax-exempt organizations that began in 2007:
· It created a filing requirement for very small tax-exempt organizations, with annual gross receipts of $25,000 or less, which were previously exempt from filing. Starting in 2007, these organizations were required to file Form 990-N (e-Postcard). Churches and their affiliated entities remained exempt from this filing requirement.
· The IRS will now automatically revoke the tax-exempt status of any organization, no matter the size, that fails to meet its filing requirement for three consecutive years. The automatic revocation is effective as of the due date of the third year's return.
In order to maintain tax-exempt status, nonprofit organizations that qualify to file IRS Form 990-N (e-Postcard), can file the form (or file electronically) by October 15, 2010. Nonprofits eligible to file Form 990-EZ would need to participate in a Voluntary Compliance Program (VCP) by October 15, 2010, to protect their status. Under the VCP, organizations have to file by October 15, 2010, any unfiled Form 990-EZ returns for the past three years, complete a checklist and pay a compliance fee ranging from $100 to $500, depending on 2009 gross receipts.
Organizations that lose their tax-exempt status are required to reapply and pay the appropriate fees to regain their status. Furthermore, any income received between the revocation and reinstatement of exempt status may be taxable at the federal and possibly state levels, and any contributions made by donors during that time are not tax-deductible. This is likely to make it challenging, if not potentially impossible, for these organizations to attract donors - especially at a time when donations are down.
For more information, contact your
Engagement Principal or
George Livanos at glivanos@smf-cpa.com.
