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Tax-Exempt Organizations at Risk of Losing Tax Exempt Status on May 18, 2010

The Pension Protection Act of 2006 made two important changes for tax-exempt organizations.  First, it mandated that organizations required to file Form 990 series informational returns will automatically lose their exempt status if the forms are not filed for three years in a row.  Second, the Act created a new form, Form 990-N, which is an electronic postcard for most small organizations (other than private foundations) with less than $25,000 in gross revenues.  Previously, these small organizations were not required to file any return at all.  Thus, small organizations that never had to file previously not only now have a filing requirement, but will lose their exempt status if this requirement had been ignored for three consecutive years.

Because 2009 is the third year for this requirement, calendar year organizations of any size that have not been filing the required Form 990, Form 990-EZ or Form 990-PF will automatically lose their exempt status if a return is not filed or extended by May 17, 2010.  Because there is not an extension process for the Form 990-N, these small organizations with the new filing requirement will face automatic revocation on May 18, 2010, if the form is not filed.  Form 990-N filers that have not filed for 2007 or 2008 will not be penalized as long as the 2009 Form 990-N is filed timely.  Entities that were required to file Form 990, 990-EZ or 990-PF that did not file in 2007 or 2008 will face possible penalties for not filing for those years, but will not automatically lose their tax-exempt status if the 2009 form is filed timely (including extensions).

It is important to note that most churches and church affiliates or not required to file any of the 990 series informational forms (although they might have a Form 990-T income tax return filing requirement if they have unrelated business income).

The Form 990-N is a very simple form and is only available to file on-line.  It requires only a few lines of non-financial information and confirmation that gross receipts were less then $25,000. To file, go to epostcard.form990.org/.  More information can be found on the IRS Web site www.irs.gov/charities/.

Any organization which automatically loses it exempt status will be allowed to apply for reinstatement by going through the entire exemption process again, by filing Form 1023 or 1024.

For more information, contact our Not-for-Profit Industry Group at 440-449-6800.

Information Courtesy: BDO

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