Effective January 1, 2007, all small charities and nonprofit organization (otherwise known as 501(c)3 tax-exempt organizations), with the exception of churches and other religion-related organizations, are required to file an annual return with the Internal Revenue Service (IRS). Tax-exempt organizations that fail to file will automatically lose the federal tax-exempt status after three years of not filing.
October 15th Extended Due Date for Nonprofits
In order to protect their tax-exempt status, nonprofit organizations should file the required returns no later than the 15th day after the fifth month of the accounting period (which is May 15th for calendar year organizations). Luckily, the IRS is giving many tax-exempt organizations one last chance to become compliant before revoking the tax-exempt status. Eligible organizations will be allowed up until October 15th to meet the requirement.
Nonprofit IRS Tax Forms: 990-N and 990-EZ
Tax exempt organizations that are eligible for the late filing relief are those that qualify to file IRS Form 990-N or 990-EZ. The IRS provides a chart outlining an organization’s eligibility to file each of these forms. Tax-exempt organizations eligible to file the Form 990-N simply need to fill out an e-postcard by answering a few basic questions to get back into compliance. Nonprofit organization eligible to file the Form 990-EZ will need to participate in the Voluntary Compliance Program.
IRS Voluntary Compliance Program
To get back into compliance, those nonprofit organizations eligible to file 990-EZ may do so by participating in the IRS Voluntary Compliance Program (VCP). Nonprofit organizations participate by filing any outstanding 990-EZ returns for the past three years, filling out a checklist, and paying a compliance fee which ranges between $100 and $500, depending on 2009 gross receipts.
Loss of Tax-Exempt Status
Failure to timely file the required returns will ultimately result in the revocation of the tax-exempt status. Without this status, nonprofit organizations are likely to find it challenging to obtain donors because donations made to nonprofits who have lost the tax-exempt status will not be tax deductible on the individual’s return. In addition, all profits recognized by the organization will be subject to federal (and possibly state) tax. A previously tax-exempt organization must go through the process to apply for tax-exempt status again once the original designation is revoked.
References:
IRS New Release 7-26-2010 - IRS Offers One-Time Special Filing Relief Program for Small Charities; Oct. 15 Due Date to Preserve Tax-Exempt Status
IRS Website - IRS Frequently Asked Questions for One-Time Filing Relief Program for Small Tax-Exempt Organizations
The information contained within this article is for general guidance only. As such, it should not be used as a substitute for consulting with professional accounting, tax, legal or other competent advisers.
Lauren Massie - “There is no knowledge that is not power” ~ Ralph Waldo Emerson
