IRS Offers One-Time Relief to Nonprofits

By HunterMaclean Attorneys

Published in Business in Savannah

The Pension Protection Act of 2006 requires most tax-exempt organizations, with the exception of churches and most church-related organizations, to file an annual tax return with the Internal Revenue Service (IRS). Any exempt organization that fails to file a return for three consecutive years will automatically lose its tax-exempt status.

In spite of the law, many tax-exempt organizations failed to file returns for 2007, 2008 and 2009. As of May 17, 2010, the first filing deadline, over 300,000 organizations had not filed a return.

In light of the overwhelming number of organizations on the verge of losing their tax-exempt status, the IRS is offering a one-time limited relief program to help small tax-exempt organizations preserve their status and extending the final filing deadline to October 15, 2010.

The One-Time Filing Relief Program applies to two types of tax-exempt organizations: the smallest organizations with gross receipts of $25,000 or less and the somewhat larger organizations that are eligible to file the Form 990-EZ. The smallest organizations can maintain their tax-exempt status by filing the simple Form 990-N, or ePostcard, which only requests eight information items and may be completed via Internet at www.IRS.gov under “Filing Phase-In.” The somewhat larger non-profit organizations can maintain their tax-exempt status by filing their three delinquent returns and paying a small compliance fee by October 15th.

The IRS has published an “At-Risk List,” which contains the names and last known addresses of the non-profit organizations that are at risk of losing their tax-exempt status.

It is in the best interest of any tax-exempt organization that has not filed to take the time to do so before the October 15th deadline. The IRS website also explains exactly which organizations are eligible to participate in the One-Time Filing Relief Program, the necessary steps to take in order to avoid losing tax-exempt status, and special resource tools to help inform other at-risk organizations of the October 15th deadline.

Large non-profit organizations that are required to file Form 990 and private foundations that are required to file Form 990-PF are ineligible to participate in the One-Time Filing Relief Program.

As a consequence of failing to file by October 15th, all non-compliant organizations will have their tax-exempt status revoked and may be required to pay any applicable income taxes and to file either: Form 1120 (U.S. Corporation Income Tax Return) or Form 1041 (U.S. Income Tax Return for Estates and Trusts). In addition, all revoked tax-exempt organizations will be ineligible to receive tax-deductible contributions. Organizations that lose their exemptions must reapply with the IRS for recognition of exemption by filing the appropriate form and paying the appropriate application fee. Any income received between the revocation date and the renewed exemption date may be taxable to the organization.

The IRS will publish a list of revoked organizations in early 2011. Donors who have contributed to revoked organizations are protected until the final revocation list is published.

There are several ways for a tax-exempt organization to keep abreast of the latest IRS news, including signing up for the EO Update Newsletter, visiting StayExempt.irs.gov, an interactive web site offering training workshops and mini-courses for exempt organizations or visiting the “Life Cycle” link at www.IRS.gov/eo.

Please assist local charitable organizations by sharing this information, which in turn may help avert tremendous losses in our communities where non-profit work is so overwhelmingly needed.