By Elsie Rose, CPA
Many tax-exempt organizations have not filed the required information return in a timely manner, putting their-tax exempt status in danger of being automatically revoked, according to Internal Revenue Service (IRS) Commissioner Doug Shulman.
In general, all nonprofit organizations, except churches and those organizations that are included in a group return, are required to file an annual information return with the IRS by the 15th day of the fifth month after their organization’s year end. For example, an organization with a year ended Dec. 31, 2009, would be required to file by May 15, 2010. Even small organizations, defined as those organizations having annual gross receipts $25,000 or less, are required to file a return.
Failure to file the required return for three consecutive years will result in the organization automatically losing its tax-exempt status. If an organization loses its tax-exempt status, it will be required to file income-tax returns, similar to all other for-profit businesses, and pay tax on the income generated. Because of the change to a taxable status, the organization will no longer be eligible to receive tax-deductible contributions from donors. The IRS cannot undo the automatic revocation of status by operation of law.
To regain recognition as a tax exempt entity, the organization must reapply using either Form 1023 or Form 1024, depending on its entity type, and pay the required user fee. If your organization is successfully reinstated, the effective date of status as a tax-exempt entity will usually be the date of application for reinstatement, though the organization may request to have its tax-exempt status reinstated to the date of revocation. To request retroactive reinstatement, the organization must attach a letter to its application for exemption. This retroactive reinstatement request will only be granted if the IRS finds reasonable cause for not filing the annual returns for three consecutive years and approves the organization’s exemption application.
Organizations need to determine the forms that are required to be filed. For the tax year 2009 (returns filed in 2010 or 2011), organizations whose annual gross receipts are normally less than $25,000 are eligible to file Form 990-N, or the e-postcard, as it is also called. If gross receipts are less than $500,000 and total assets are less than $1.25 million, the organization should file form either Form 990 or 990-EZ. Organizations whose receipts are equal or greater than $500,000 or total assets equal or exceed the $1.25 million are required to file Form 990. Form 990-N must be filed electronically. Electronic filing of Forms 990-EZ and 990 may or may not be required, depending on certain circumstances. If a return is required to be filed electronically but the organization files in paper form, the organization is considered not to have filed its return.
The IRS encourages organizations not meeting the filing deadline to go ahead and file as soon as possible. “I want to reassure these small organizations that the IRS will do what it can to help them avoid losing their tax-exempt status,” Shulman said in a statement. “The IRS will be providing additional guidance in the near future on how it will help these organizations maintain their important tax-exempt status — even if they missed the May 17 deadline.” A timely response to any communication received by an organization from the IRS is the first step to resolving the situation. Even if an IRS notice is not issued and your organization recognizes that it is delinquent with their filings, taking quick action to file all necessary documents will minimize the risks of penalties and tax-exempt status revocation.
If you are concerned about your organization’s compliance with required IRS filings or the compliance of any nonprofits you work with, contact a local CPA who specializes in tax-exempt entities.
Elsie L. Rose CPA, is responsible for coordination of firm audit services at Yount, Hyde & Barbour, P.C in Glen Allen. Her areas of service have included auditing and accounting, system and process planning and documentation, and due diligence services. Her current Board involvement focuses on services to families and children in the Richmond community. She is a member of the Virginia Society of CPAs (VSCPA).