We are often asked whether a 501(c)(3) that filed Form 1023-EZ has to re-apply when their revenue exceeds $50,000. Fortunately, there is no need to re-apply in that situation. That said, there are a number of other circumstances that do trigger a duty to report back to the IRS. In our experience, many tax-exempt organizations are unaware that they are required to report major changes to the IRS.
What Changes to Report to IRS
Tax-exempt organizations must report changes to their name, address, articles, bylaws, as well as major operational changes. Major operational changes include significant changes to programs, purposes, or sources of revenue. Similarly, many private foundations are unaware that they are required to request approval of individual scholarship programs and foundation set asides on Form 8940.
How to Report
An organization that files an annual return (such as a form 990, 990-PF or 990-EZ) must report the changes on its return. In addition, the following additional reports may need to be made:
- If the organization needs to report a change of name, see Change of Name- Exempt Organizations.
- To report a change of address, see Change of Address “ Exempt Organizations.
- To obtain a letter from the IRS reflecting its new name, request an affirmation letter showing the new name and/or address and affirming the tax-exempt status and deductibility of contributions.
An exempt organization can file Form 8940 to request a determination letter regarding the effect of certain changes on its public charity status or private foundation status. For example, tax-exempt organizations can request a miscellaneous determination letter to reclassify an organization as a public charity or a private foundation. A miscellaneous determination may also be requested to pre-approve a donation as an unusual grant, to pre-approve voter registration programs, to approve a change from one type of tax-exempt entity to another, or to terminate private foundation status. Exempt organizations may also request a determination letter showing whether it is exempt from filing annual information returns in certain situations.
If an organization is unsure about whether a proposed change is consistent with its tax status, it may want to request a private letter ruling. However, the IRS will not rule on a transaction that has already occured.
Consequences for Failing to Report to IRS
The failure to properly report significant changes can have devastating consequences. The worst-case scenario is retroactive revocation of an organization’s tax-exempt status. If, however, the changes are properly reported, any adverse action by the IRS can only be effective on a going-forward basis.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.