The IRS Reminds Tax-Exempt Organizations of All Sizes to File the Form 990 on Time to Preserve Their Tax Exempt Status

To our many friends involved with a federally tax exempt & non-profit entity:

If your non-profit entity previously sought & obtained federal tax exempt status, but as a result of the modest amount (below $25,000) of gross revenues from year to year (“revenue” has nothing to do with gross or taxable or adjusted “income”), or for some other reason, no federal Form 990 , or 990 EZ, or 990-N income tax return for this taxpayer was filed, beware:  the new (in 2007) federal filing requirement for small exempt entities may be the undoing of this entities’ previous ‘tax exempt status’.  The advance or “final” ruling status as to tax exemption WILL be revoked even if the modest level of your gross revenues fell below the former exemption from filing requirement if no Form 990 or appropriate substitute return is timely received by IRS.
Most states have a similar periodic filing/reporting requirement for its non-profit corporations (e.g., biennial reports) for which the possible loss of non-profit status is often the result of non-filing with the state.  The failure to timely file with IRS will now result in the loss of any tax exempt status formerly granted by IRS.
As the note below indicates, 2010 is the fourth year this new filing requirement has been in effect.  Again, as indicated in the note below, such entities risk the possible loss of exempt status where the entities fail to file the appropriate return for three consecutive years.
Finally, why do various kinds of community &/or non-profit entities seek tax exempt status with IRS?   In order to avoid the risk that every dollar received by such entities may be treated by IRS as “income” with little if any recognized deductions allowed in some cases, the result of which is having a whole bunch of taxable income (where gross income = ~taxable income).  Once IRS locates such entities (the non-filing entities), it will want to examine books & records to determine the federal tax effect of the non-exempt organization’s non-filing, often then followed by an employment tax exam to determine if individuals receiving disbursements from this taxpayer in connection with the provision of services  to the taxpayer should have been treated as “employees” with a whole host of IRS compliance complications, penalties, etc.  Here is the kicker:  If IRS has any reason to visit your organization including its failure to file a Form 990, etc., after it determines the income tax & employment tax damages, it will determine if some one or more “responsible persons” should be personally liable for failing to also file quarterly 941’s, withhold & pay over the employment tax due for payments made to individuals for services (FICA, W/H tax, etc.).   What was it Ben Franklyn that said:  “A stitch in time will save nine….”  Maybe it was Elvis, I’m not sure.  In any event, they don’t leave us much in the way of ‘wiggle room’ where it comes to our obligations & responsibilities for the payment of taxes….
Big Brother IS watching you….
Hope this helps,
Bob Brink
IRS CIRCULAR 230 REQUIRED DISCLOSURE:  Please note the views expressed herein or in any attachments hereto are not intended to constitute a “reliance opinion” under applicable Dept. of Treasury (IRS) regulations, and accordingly are not intended or written to be used, and may not be used or relied upon for the purpose of (a) avoiding penalties that may be imposed by the IRS; or (b) promoting, marketing, or recommending to another party any transaction or other matters addressed herein.  0708
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The IRS Reminds Tax-Exempt Organizations of All Sizes to File the Form 990 on Time to Preserve Their Tax Exempt Status
IR-2010-10, Jan. 21, 2010
WASHINGTON — The Internal Revenue Service today reminded tax-exempt organizations to make sure they file their annual information form on time. In 2010 the tax-exempt status of any non-profit that has not filed the required form in the last three years will be revoked.
The Pension Protection Act of 2006 requires that non-profit organizations that do not file a required information form for three consecutive years automatically lose their Federal tax-exempt status. This requirement has been in effect since the beginning of 2007.
A list of revoked organizations will be available to the public, as well as state charity and tax officials on this website.
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.
Small non-profit organizations with annual receipts of $25,000 or less can file an electronic notice, Form 990-N ( e-Postcard). They will need only a few basic pieces of information to file: the organization’s employer identification number, its tax year, legal name and mailing address, any other names used, an Internet address if one exists, the name and address of a principal officer and a statement confirming the organization’s annual gross receipts are normally $25,000 or less.
Tax-exempt organizations with annual receipts above $25,000 are required to file the Form 990 or the Form 990-EZ annually. Private foundations file Form 990-PF. Churches and integrated auxiliaries of churches are not required to file Form 990-series returns or notices.
Form 990-series returns and e-Postcards, are due by the 15th day of the 5th month after an organization’s tax year ends. For more information visit the relevant page on this web site.