Small nonprofits must file a notice with IRS starting in 2008
By Steven L.F. Ho
Small nonprofits – tax-exempt organizations with less than $25,000 in gross annual receipts – are not currently required to file a Form 990 with the Internal Revenue Service. That will soon change, with severe consequences for noncompliance, as a result of the enactment of the Pension Protection Act of 2006.
For tax years beginning on or after Jan. 1, 2007, small nonprofits that are not now required to file a Form 990, will be required to file an annual electronic notice, the Form 990-N, also known as the e-Postcard. The IRS is now seeking public comment before May 14 on the new form.
Form 990-N will be due by the 15th day of the fifth month after the end of the organization’s fiscal year. For example, if an organization’s fiscal year ends on Dec. 31, 2007, its Form 990-N will be due May 15, 2008.
Filings will only be accepted electronically – there will be no paper forms. The IRS is developing the electronic filing system and will publicize the filing procedures once the system has been completed.
Information required on the Form 990-N include the organization’s name, mailing address, website address, employer identification number and annual tax period, the name and address of a principal officer of the organization and a statement that the organization’s annual gross receipts are normally less than $25,000.
An organization that fails to file Form 990-N for three consecutive years will automatically have its tax-exempt status revoked. Once that happens, the organization must to reapply and pay a user fee to have its status reinstated. Accordingly, it is critical that responsible officers of small nonprofits implement procedures to ensure that the Form 990-N filings are completed.
Steven L.F. Ho, slh@torkildson.com, is a HANO Board member and an attorney with the Honolulu firm of Torkildson, Katz, Fonseca, Moore & Hetherington.
IRS to clarify instructions for completing the Form 990
In other IRS news, due to enactment of new laws in 2006 and continued scrutiny of nonprofits by the IRS and Congress, there are many changes to the nonprofit tax return, the Form 990, and the instructions issued by the IRS in January for completing the form for the 2006 tax year.
The changes are far-reaching and require nonprofits to seek detailed information from their board members. To further clarify the changes, the IRS plans to provide more information about some areas of the instructions on the IRS website in May. Some tax advisers are recommending their nonprofit clients delay filing their 2006 Forms 990 until the clarifications are issued.
