Not filing Form 990 could mean loss of nonprofit status

Most tax-exempt organizations, other than churches, must file a yearly return or notice with the Internal Revenue Service. If an organization does not file a required annual return for three consecutive years, the law provides that it automatically loses its tax-exempt status, the IRS warns. 

This year, 2010, is the first year that organizations will be subject to this loss, if they have failed to file a return for 2007, 2008, and 2009. Loss of exempt status means an organization must file income tax returns, pay any applicable income tax and and inform its contributors that they will not be able to deduct their donations. What must be filed this year depends on the organization’s financial activity:

• If the organization’s gross receipts are normally less than or equal to $25,000, file Form 990-N.
• If gross receipts are greater that $25,000 and less than $1 million, and total assets are less than $2.5 million, file Form 990-EZ.
• If gross receipts are equal to or greater than $500,000, or total assets are equal to or greater than $1.25 million, file Form 990.
• Private foundations, regardless of financial activity, file 990-PF.

To regain its tax-exemption, an organization must apply for IRS recognition of exemption, even if it was not originally required to apply, by filing Form 1023, for 501(c)(3) tax-exempt organizations, or Form 1024, for organizations exempt under other IRS Code sections, and pay the application fee.

If the IRS approves the application, tax-exempt status will be effective as of the date of the application, unless the organization demonstrates reasonable cause for failure to file. In that case, exemption will be effective as of the date of revocation. Any income from the date of the revocation to the new effective date may be taxable.

Details on these topics are available on the Life Cycle page of the IRS Charities and Nonprofits web page, www.irs.gov/eo, or from the IRS toll-free customer service line, (877) 829-5500.

Form 990 and its variants aren't the only returns exempt organizations must file with the federal government. There are also employment returns, excise tax returns and special forms, such as those used to report gambling winnings or donations of motor vehicles, boats and airplanes. The IRS has published tables of the due dates for Form 990 and other returns nonprofits must file and released the governance check sheet that agents will use in exempt organization examinations.

The IRS is looking closely at governance at tax-exempt organizations. Every examination of an exempt organization will include a check sheet of items related to governance. Last month, the IRS posted on its Web site both the check sheet and the guidance agents will use to complete it.