Small tax-exempt organizations have a new filing requirement. The Pension Protection Act of 2006 made some big changes to the tax law as it affects charities, particularly the operation of tax-exempt charitable organizations. It included new rules for charitable giving, new reporting, unrelated business income and sanction rules, tougher rules for private foundations, tougher rules for supporting organizations and new rules for donor-advised funds.
One measure is a particularly nasty trap for small non-profits.
Small tax-exempt organizations, whose gross receipts are normally $25,000 or less, are not required to file Form 990, Return of Organization Exempt From Income Tax, or Form 990-EZ, Short Form Return of Organization Exempt from Income Tax.
Now these organizations that have not had to file a 990 or 990-EZ must file electronically a Form 990-N, also known as the e-Postcard, with the IRS annually. The 990-N will include the organization's name, address, Internet address, employer identification number (EIN), name and address of the principal officer and evidence of the continued basis for its exemption from filing Form 990. This filing requirement applies to all types of exempt organizations (for example, trade associations and social clubs), not just Section 501(c)(3) organizations.
The following organizations are exempt and do not have to file the 990-N: organizations that are included in a group return, private foundations required to file Form 990-PF, section 509(a)(3) supporting organizations required to file Form 990 or Form 990-EZ, churches, their integrated auxiliaries and conventions or associations of churches.
An organization that is required to file the 990-N and fails to file for three consecutive years will have its tax-exempt status revoked as of the filing due date of the third year. If the organization's tax-exempt status is revoked, the organization must apply (or reapply) and pay the appropriate user fee to have its tax-exempt status reinstated.
The IRS is developing an electronic filing system (there will be no paper form) for the e-Postcard and will publicize filing procedures when the system is completed and ready for use. You must be able to access the Internet, but no software or download is required. If your non-profit does not have a computer, you will be able to fill out Form 990-N using a computer at a public library.
Form 990-N must be filed every year; however there is no one due date for filing the e-postcard. Instead, you must file "by the 15th day of the 5th month after" your nonprofit's fiscal year ends. For instance, if your fiscal year is the same as the calendar year (i.e., ending on Dec. 31), your organization does not need to file the e-postcard until May 15. This filing requirement applies to tax years beginning after 2006. If your organization is on a calendar year, the first 990-N for 2007 and is due on May 15, 2008.
The IRS has been mailing educational letters to more than 650,000 small tax-exempt organizations that are affected. Because these organizations have had no annual filing requirements before, the IRS may not have current addresses. If you believe the IRS may have an incorrect address for your organization, you can file Form 8822, Change of Address, with the IRS.
IRS forms can be downloaded at www.irs.gov. With frequent turnover of volunteer board members, and an executive who may also be a volunteer, many organizations may easily be unaware of the new requirement.
According to the IRS, this new filing requirement was added to improve transparency within the nonprofit sector. The information will ensure that donors, who may want to contribute to your organization, and the IRS have current information about your organization.
