Charities face more IRS filing requirements
The Internal Revenue Service filing requirements for small charities have changed. A new rule put in place by the Pension Protection Act of 2006 results in certain tax-exempt organizations being required to electronically submit a Form 990-N annually.
Form 990-N, also known as the e-Postcard, is not a tax return, but a notice to the IRS. Affected by this change are tax-exempt organizations that are not considered private foundations or supporting organizations, and whose annual gross receipts are normally $25,000 or less ($50,000 starting in the 2010 tax year). Organizations that are included in a group return -- and churches, their integrated auxiliaries and conventions or associations of churches -- are not required to file. Because certain small exempt organizations are excepted from the requirement to file annual information returns (Form 990), the IRS has been unable to maintain a record of the continuing existence of these organizations and the public cannot easily obtain basic information about them.
An exempt organization required to file a Form 990-N must begin doing so for its tax year ending on or after Dec. 31, 2007. The form is due by the 15th day of the 5th month after the close of an organization's tax year. For example, an organization whose tax year ended on Dec. 31, 2007 is required to file its Form 990-N by May 15, 2008.If the organization does not have an established accounting period, it is deemed to use the calendar year.
Completion of the Form 990-N must be done electronically and can be found, as well as submitted to the IRS, at the following Web site: www.irs.gov/charities. The Form 990-N requires exempt organizations to provide the following information:
» Employer identification number (EIN).
» The tax year.
» Legal name and mailing address.
» Any other names the organization operates under.
» The name and address of a principal officer.
» Its Web site address, if it has one.
» Confirmation that the organization's annual gross receipts are normally $25,000 or less.
» If applicable, a statement that the organization has terminated or is terminating operations.
Should an organization fail to file its Form 990-N on time, the IRS will send a reminder notice, but no late-filing penalty will be assessed. However, an organization failing to file a Form 990-N for three consecutive years will automatically lose its tax-exempt status, with the revocation being effective as of the filing date of the third year.
If an organization loses its exempt status because it failed to file a notice, it will have the ability to apply for a reinstatement. This reinstatement requirement applies even if the organization was originally not required to apply for exemption. Reinstatement generally will be granted after the application date, but can be retroactive if the organization can show evidence of reasonable cause for failing to satisfy the notification requirement.
The IRS has yet to issue guidance about the method of applying for reinstatement. Thus, tax-exempt organizations normally having annual gross receipts of $25,000 or less should take steps to determine whether they are required to start filing a Form 990-N with the IRS.
For organizations that are required to file, the form is simple and compliance is easy. However, these organizations should take care to ensure that the annual filing requirement is met, as repeated failures to comply can lead to a loss of tax-exempt status.