Small Tax Exempt Organizations: Extension of Time to File Delinquent Form 990s

As anticipated, the IRS announced a relief program today for small nonprofits at risk of losing their tax-exempt status.

Automatic Revocation. As previously discussed in CharityLawyer’s April 24th post, The Pension Protection Act of 2006 made two important changes affecting tax-exempt organization that were effective beginning in 2007.  First, the Act mandated that all tax-exempt organizations, other than churches and church-related organizations, must file an annual return with the IRS.  As a result, the Form 990-N was created for small tax-exempt organizations that had not previously had a filing requirement.  Second, the Act required that tax-exempt organizations that fail to file for three consecutive years will  automatically loses their tax-exempt status. If an organization loses its exemption, it will have to reapply with the IRS to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable and donations may not be deductible.

List of At-Risk Organizations. The IRS has posted a new page on its website that names the last-known addresses of organizations at risk of losing their tax-exempt status for failure to file the required returns for 2007, 2008 and 2009 can preserve their status by filing returns by Oct. 15, 2010, under a one-time relief program. Organizations on the list have until October 15th to bring themselves into compliance. Note that organizations who have failed to file Form 990 for three consecutive years are at risk of losing their tax-exempt status regardless of whether they appear on this list.

Relief.  Two types of relief are available for small exempt organizations – a filing extension for the smallest organizations required to file Form 990-N, and a Voluntary Compliance Program for small organizations eligible to file Form 990-EZ. To comply, small organizations required to file Form 990-N should go to the IRS website, complete the form, and electronically file it by Oct. 15, 2010.

Under the Voluntary Compliance Program, larger tax-exempt organizations eligible to file Form 990-EZ (but not eligible to file Form 990-N) must file their delinquent annual information returns by October 15 and pay a compliance fee which is between $100 and $500 depending upon the organization’s revenues.  Details about the VCP are on the IRS website , along with frequently asked questions.

Note that the relief program is not available to larger organizations that are required to file the Form 990 or the Form 990-PF.

Donations to At-Risk Organizations. The IRS will keep today’s list of at-risk organizations on its website until Oct. 15, 2010. Organizations that have not filed the required information returns by that date will have their tax-exempt status revoked, and the IRS will publish a list of these revoked organizations in early 2011.  Contributions from donors who contribute to at-risk organizations will qualify for the charitable contribution deduction until the final revocation list is published.

For more information, check out the IRS’ You Tube video on the topic.

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