The IRS is about to implement for the first time revocation of 501(c)3 status for up to 400,000 registered nonprofits. The first round of revocations will begin May 17, 2010. If your tax exemption status is revoked, the only way to reinstate it will be to reapply. This can easily cost over $1000 with application and attorney, accountant or consultant fees.
501(c)3 organizations must file a Form 990 every year with the IRS. The number of registered nonprofits was growing dramatically and many never really became active organizations or filed a 990 with the IRS as required by law. The IRS would like to increase its oversight of nonprofits but first it wanted to rid its roles of what it considered nonexistent organizations. So in 2006 a law was passed which stipulates that if an organization does not file as required for three consecutive years, it automatically loses its tax-exempt status.
The IRS started out with about a million registered charities that could lose their 501c(3) status. Over the last three years they have set up a process to make it simple for small and startup organizations to file and they have aggressively tried to let nonprofits know that they MUST meet this requirement or their 501(c)3 status will be revoked.
Even if you don’t have any income and the organization does not have to pay taxes you do have to file a 990 form with the IRS. For small organizations with gross receipts of less than $25,000 you simply have to file an ePostcard. Organizations with an income of less than $500,000 can file a 990EZ form and those with greater incomes must file the more comprehensive 990 form.
What will happen if you lose your 501(c)3 status:
The organization must file income tax returns and pay income tax, and its contributors will not be able to deduct their donations.
You may not be entitled to other important exemptions including property tax and sales tax in your state.
You may not be eligible for grants from the government and foundations
Guidestar will be updated, as announced, to show your change in tax exempt status
There are a couple of important resources available that you can check where your organization stands right now.
The Urban Institute National Center for Charitable Statistics has developed a simple tool to find out if you may need to file. I tried this database and simply put in a zip code and all of the organizations in jeopardy came up. I was glad to see that an organization I worked with in January had filed their ePostcard and was not on this list.
Urban Institute National Center for Charitable Statistics
The IRS has a clear, concise statement on this issue and all of the information that you need to file the correct form:
Automatic Revocation for Not Filing Annual Return or Notice
A Guidestar news release states that the IRS will give a six month reprieve by not sending out revocation letters until 2011 but I was not able to find that information on the IRS website.
Bottom line: THIS IS IMPORTANT. I checked several zip codes and was surprised at the organizations on the IRS hit list. Most were small, locally based, all volunteer organizations. Whoever is running them may have NO idea about all of this. If you are associated with a local PTA, parents sports boosters association or other small local nonprofit, take these steps NOW:
1.Check the database to see if your organization is on the list.....If it is:
2. Go to the IRS site and based on your organizations gross receipts, figure out which form you must fill out.
3. Fill out and file the correct form now... the clock is ticking fast......!!!
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