The IRS recently increased the filing threshold for exempt organizations to file a simplified annual notice instead of a more burdensome information return. Prior to 2007, most exempt organizations gross annual receipts below $25,000 were not required to file anything with the IRS. In 2007, the law changed to require such organizations to file the simplified Form 990-N, also known as the e-Postcard.
The e-Postcard is an online document that only requires eight pieces of information. The e-Postcard was implemented in 2007 as part of an effort by the federal government to keep track of small organizations that may have ceased to exist.
This year, the threshold for filing the e-postcard was increased to $50,000 for tax years beginning in 2010. The relaxed rules allow more tax-exempt organizations to file the simplified e-Postcard, rather than the more labor-intensive Form 990-EZ or the standard Form 990. This change was meant to ease the burden placed on small organizations for which filing the complete Form 990-EZ (or equivalent form) is quite burdensome.
While this is good news for many small nonprofits nationwide, not all Arizona nonprofits that qualify under federal law are able to benefit from the expanded filing threshold. In Arizona, exempt organizations with gross annual receipts above $25,000 complete Arizona Form 99. Arizona law provides as follows:
Most organizations that have tax-exempt status under A.R.S. § 43-1201 must file Form 99 or a copy of the organization’s federal return of the organization exempt from income tax only if their gross income exceeds $25,000.
The Arizona Form 99 permits filing organizations to either fully complete the Arizona Form 99 or complete the first page and simply attach a copy of the filing organization’s Federal Form 990 or Form 990-EZ. Until 2010, the Arizona Form 99 filing threshold tracked the federal filing threshold.
Today, Arizona nonprofits with gross annual receipts under $50,000 are able to submit the e-Postcard to the IRS but Arizona still requires those with gross annual receipts between $25,000 and $50,000 to either complete the more detailed Arizona Form 99 or complete the Federal Form 990-EZ and submit it with the Arizona Form 99. Thus, the current Arizona law renders the relaxed federal rules moot for many small Arizona nonprofits.
A simple change in Arizona law would sync the state and federal information return processes, allowing a more simplified filing for small Arizona nonprofits with gross income between $25,000 and $50,000. The purpose of the recent change in federal requirements was to ease the burden of the annual filing for small nonprofits. To reconcile Arizona law with Federal law, the Arizona legislature need only amend ARS §43-1242 C. 1 to read as follows:
Need not file it if its gross income does not exceed fifty thousand dollars.
The recommended change would allow small Arizona nonprofit organizations to spend more time fulfilling their mission and expend less of their resources on tax compliance.
Ellis Carter is a nonprofit lawyer licensed to practice in Washington and Arizona. Ellis advises tax-exempt clients on federal tax matters nationwide.