As reported in Guidestar's recent article, "What Automatic Revocation of Nonprofit Tax Exemptions Means for You," most tax-exempt organizations, excluding churches, must file a yearly return or notice with the IRS. If an organization does not file as required for three consecutive years, the law provides that the organization automatically loses its tax-exempt status.
The IRS has issued a list of over 300,000 nonprofits whose tax-exempt status is at risk of being revoked as a result of failure to file an annual information return. Potential revocations came about as a result of the Pension Protection Act of 2006, which changed the filing requirements for small exempt organizations. The Act required organizations with annual revenue of $25,000 or less to begin filing the Form 990-N (e-Postcard). After a one-time filing relief program which expired in October 2010, the IRS stated it would publish the list of revoked organizations and update that list on a monthly basis. The list will be found at www.irs.gov.
What do I need to file for 2010 tax year and beyond?
In general, what must be filed depends on the organization's financial activity. As a reminder, for an organization that normally has gross receipts of $50,000 or less, the 990-N (e-Postcard) can be filed. Please note that organizations eligible to file the e-Postcard may choose to file a full return.
For organizations with annual gross receipts less than $200,000 and total assets less than $500,000, either the Form 990-EZ or Form 990 can be filed.
For an organization with gross receipts of $200,000 or more or total assets of $500,000 or more, the Form 990 needs to be filed.
For a private foundation (regardless of its financial activity), the Form 990-PF must be filed.
What if Exemption is Revoked?
If an organization's exemption is revoked, it must file a Form 1120, U.S. Corporation Income Tax Return or a Form 1041, U.S. Income Tax Return for Estates and Trusts, and the organization may need to pay income tax. Furthermore, its contributors will not be able to deduct their donations during which time the organization's tax-exempt status has been revoked.
To regain its tax-exempt status, the organization must file a Form 1023 (for 501(c)(3) organizations) or a Form 1024 (for organizations exempt under other Code sections). If the IRS approves the application, tax-exempt status will be effective as of the date of the application.
What does it mean?
Private foundations will need to now confirm that a grantee or gift recipient is not on the list of organizations that have lost their exempt status and also verify charitable status in IRS Publication 78. Donors should confirm status prior to making and claiming a charitable deduction. Should an organization's status be revoked, the IRS may disallow the deduction and the taxpayer may then be required to pay a penalty.
For more information, visit www.irs.gov. Feel free to ask us any questions as they relate to your organization.