Small Tax-Exempt Organizations: Don't Lose Your Exempt Status
On July 26, 2010, the Internal Revenue Service implemented a one-time special filing relief program for "small" tax-exempt organizations at risk of losing their tax-exempt status because they didn't file required annual information returns with the IRS for 2007, 2008, and 2009. Eligible organizations can come into compliance and preserve their tax-exempt status by filing the required returns by October 15, 2010. A list of potentially affected organizations has been posted on the IRS website (www.irs.gov).
Prior to 2007, tax-exempt organizations whose gross receipts were normally $25,000 or less were not required to file an annual information return with the IRS. However, the Pension Protection Act of 2006 changed the annual filing requirements for "small" tax-exempt organizations to ensure that the IRS and potential donors would be able to obtain current information regarding the organization.
Most tax-exempt organizations whose gross receipts are normally $25,000 or less must now file IRS Form 990-N. This includes the subordinate organizations of a parent tax-exempt organization (such as chapters) that do not file as part of the parent's group information return as long as the subordinate's annual gross receipts are normally $25,000 or less.
Form 990-N is commonly referred to as the "e-Postcard" by the IRS, since it is an internet-based form and must be filed electronically. The first filings of Form 990-N were due in 2008 for the tax years ending on or after December 31, 2007. Subsequent filings of the Form 990-N were due annually thereafter. The IRS has indicated that a reminder notice was sent to potentially affected organizations.
The IRS will not assess a penalty if a tax-exempt organization required to file Form 990-N files late or fails to file, but that organization will lose its tax-exempt status if it fails to file the delinquent Form 990-N by October 15, 2010.
The IRS has also implemented a voluntary compliance program for tax-exempt organizations eligible to file IRS Form 990-EZ and who failed to file required annual information returns with the IRS. Affected organizations must file their delinquent annual information returns by October 15, 2010 and pay a compliance fee.
If an organization loses its tax-exempt status for failure to file Form 990-N or Form 990-EZ, the organization will have to file a new application for tax-exemption with the IRS, unless the organization can show that it had reasonable cause for the failure to file. If reasonable cause is shown and a reinstatement of tax-exempt status is granted, the reinstatement may be granted retroactively. Any income received by the organization between the revocation date of its tax-exempt status and the date of the renewed exemption will likely be taxable.
The Form 990-N is due every year by the 15th day of the fifth month after the close of the affected tax-exempt organization's tax year. Completing the Form 990-N requires the following information from the organization: (1) Employer Identification Number (EIN)/Taxpayer Identification Number (TIN), (2) tax year, (3) legal name and mailing address, (4) other names and/or tradenames used by the organization, (5) name and address of a principal officer, (6) website address (if any), (7) confirmation that the organization's gross receipts are normally $25,000 or less, and (8) if applicable, a statement that the organization has terminated or is going out of business.
Tax-exempt organizations may still chose to voluntarily file IRS Form 990 or Form 990-EZ in lieu of filing Form 990-N. Certain tax-exempt organizations are exempt from the Form 990-N filing requirement. Subordinate organizations of a parent tax-exempt organization that are included in the parent organization's group tax-exemption and are included in the parent's group information return are not required to file Form 990-N, since the group information return satisfies the subordinate organization's reporting requirement. However, if the subordinate organization does not file as part of the parent's group information return and the subordinate's annual gross receipts are normally $25,000 or less, the subordinate organization must file its own Form 990-N. Churches, their integrated auxiliaries, and conventions or associations of churches are also not required to file Form 990-N. However, tax-exempt organizations whose annual gross receipts are normally not more than $5,000 that support certain religious organizations must file Form 990-N, unless they voluntarily file IRS Form 990 or Form 990-EZ.
Other tax-exempt organizations cannot file Form 990-N, but must file a different form. Private foundations must file IRS Form 990-PF. Some section 509(a)(3) supporting organizations are required to file Form 990 or Form 990-EZ. Section 527 political organizations that are required to file an annual information return are required to file Form 990 or Form 990-EZ.