The Pension Protection Act of 2006 requires nonprofit organizations to file certain required information forms with the IRS. The Act provides that nonprofit organizations who fail to file for a period of three years will lose their tax-exempt status. Not only will non-compliant organizations be forced to reapply for tax-exempt status, but any revenue received between the revocation and the recertification will be subject to income tax. The deadline for filing was midnight on May 15, 2010.
The organizations most likely to be affected by this provision are those charities with annual revenues of $25,000 or less. Historically, those organizations were not required to file or return any information to the IRS (as opposed to those organizations with revenues in excess of $25,000, which were required to file Form 990 or 990-EZ). To ease the new filing burden, those nonprofit organizations with revenues of $25,000 or less are eligible to file Form 990-N, which requires a limited amount of information. Necessary information includes 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 that the organization’s annual gross receipts are normally $25,000 or less.
While the IRS made a valiant effort to alert all organizations that will be affected by the rule change, invariably, a large number of organizations will slip through the cracks. Estimates place the percentage of organizations at risk of losing their tax exempt status somewhere between twenty (20%) and twenty-five (25%) percent. Lois G. Lerner, Director of the Exempt Organization Division of the IRS, stated that although the revocation was effective May 16, 2010, the IRS will most likely not send around revocation notices until January 2011 to provide organizations with additional time to arrange their affairs. Donors may still deduct donations until a formal notice of revocation is received by the organization. If your organization, or any organization you know, is at risk of losing its tax-exempt status; please advise them to seek guidance from a tax professional immediately.