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Chris Jacobsen: What nonprofits should know about taxes

It's The Law

Posted: May 27, 2010 3:54 p.m.
Updated: May 28, 2010 4:55 a.m.
 
May 17, 2010, may prove to have been an ignominious date for many small nonprofit organizations. It is the first date on which the IRS may have been required to terminate the tax-exempt status of a nonprofit organization for the failure to make required filings with the IRS.

The termination of an organization's tax-exempt status not only requires it to file tax returns as if it were a for-profit organization, but it also eliminates the charitable deductions available to donors for their further contributions to the organization.

Several years ago, in light of real and perceived abuses in the operations of tax-exempt charitable organizations (as well as a host of other tax concerns), the Pension Protection Act of 2006 was adopted. Prior to that time, the requirement that an exempt organization file annual information returns (Form 990 series returns) did not generally apply to organizations whose gross receipts did not exceed $25,000 for the taxable year.

The 2006 law did not require these small organizations to file Form 990s. However, it did require these organizations to annually file basic information confirming their continued existence and that their gross revenues continued to be not more than $25,000 per taxable year.

The annual information of these small exempt organizations is to be filed online through an e-Postcard, also known as Form 990-N.

The e-Postcard can be located through the IRS website at www.irs.gov. The annual filing is due on the 15th day of the fifth month after the end of the organization's taxable year. Thus, for calendar-year organizations, the due date is May 15. Since May 15 fell on a Saturday this year, the due date was extended to Monday, May 17.

The filing of the e-Postcard is not a new requirement for exempt organizations. Rather, the 2006 law required that such filings commence with the 2007 taxable year.

So how did May 17 become the date of infamy? The 2006 law provided that automatic revocation only applied if an exempt organization failed to file an e-Postcard (or other Form 990) for three consecutive years.

Any tax-exempt organization that has not filed the required form in the last three years automatically will lose its tax exemption effective as of the due date of the third annual filing.

The 2006 Pension Protection Act does not provide the IRS with any discretion regarding this revocation of status.

In order to restore its tax-exempt status, an organization must file an application for recognition of exemption, irrespective of whether the organization was required to make an application in order to garner its original exemption. In connection with that application, an organization may request that its tax-exempt status be reinstated retroactive to its date of automatic revocation.

Notwithstanding the dire consequences of the 2006 law for the failure to file for three consecutive years, the IRS issued a statement on May 18 that encouraged small organizations to file their e-Postcards even though the due date passed.

The IRS further promised to provide additional guidance on how it will help late-filing organizations maintain their tax-exempt status. The guidance will apparently offer relief to small organizations and an opportunity to keep their tax-exempt status intact.

While that guidance is not available as of the date of this writing, if your small organization (or one to which you are a donor) has not yet filed, it may well behoove you to make a late filing of your e-Postcard and keep your options open for future relief.

Chris Jacobsen is a partner with the law firm of Poole & Shaffery, LLP. He may be reached at (661) 290-2991 or cjacobsen@pooleshaffery.com. His column reflects his own views and not necessarily those of The Signal. "It's The Law" appears Fridays and rotates between members of the Santa Clarita Valley Bar Association. www.SCVbar.org. Nothing contained herein shall be or is intended to be construed as providing legal advice.

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