Tax Exempt Organizations Face Crucial Deadline

Years ago, small tax exempt organizations had it easy. So long as they raised less than $25,000 in a calendar year, they general didn’t have to file an informational return with IRS. Easy.

That all changed in 2006. The Pension Protection Act of 2006 made it mandatory for most tax-exempt organizations to file an annual information return or notice with the IRS regardless of how much (or little) income the organization receives. Failure to do so for three consecutive years will result in an automatic loss of tax-exempt status. That three year rule is important since this year, 2010, marks the third year since the rule took effect (beginning in calendar year 2007). In other words, this year is THE year that matters for most tax-exempt organizations, especially those that were previously not required to file.

Loss of tax-exempt status can spell disaster for some organizations: not only does it mean that the organization must file income tax returns and pay tax but perhaps more importantly, it means that donors cannot take tax deductions for contributions. The ability to claim a deduction is often the motivation for individuals to make a charitable donation; without it, many potential donors may go elsewhere (or not give at all). That means it’s crucial to stay compliant.

For most tax-exempt organizations, the key date is May 17. That’s the filing deadline this year for calendar year tax-exempt organizations (yes, that sounds weird but May 15 falls on a weekend in 2010, bumping the due date to Monday, May 17).

Here’s a general rundown on what to file:

• For tax-exempt organizations with annual gross receipts of $25,000 or less, file form 990-N, also known as an e-Postcard.*
• For tax-exempt organizations with annual gross receipts of less $500,000 and total assets of less than $1.25 million, file form 990-EZ* (downloads as pdf).
• For tax-exempt organizations with annual gross receipts of $500,000 or more or total assets of $1.25 million or more, file form 990 (downloads as pdf).
• Organizations classed as private foundations must file a form 990-PF (downloads as pdf) regardless of the amount of receipts.

* Psst, nothing says you can’t file the long return if you want to. I’m sure you have your reasons.

Actually, that last *note is a good rule of thumb. It’s practically impossible to over-report so filing a regular ol’ form 990 out of desperation isn’t the worst thing in the world. But keep in mind that some exceptions and other reporting requirements may apply. If you’re not sure what to do or if you have questions, consult with your local tax pro. But stay compliant – it’s a lot less expensive to report on time than to re-apply for status.

Kelly Phillips Erb

Kelly Phillips Erb is a tax attorney, tax writer, and podcaster.

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