Small Nonprofit Organizations May Lose Their Tax Exempt Status

A recent New York Times article has brought back into the spot light a 2006 federal law that could force as many as 400,000 charitable organizations, civic organizations, business leagues, and social clubs to lose their tax exempt status with the IRS. The Pension Protection Act of 2006 created a new filing requirement for charities with gross receipts totaling less than $25,000 in order to better track these “small” exempt organizations. These small organizations normally do not have to file Form 990 but are required to file an annual e-postcard (form 990-N) that provides the IRS with current contact information as well as verifies the organizations continued qualification as an exempt organization. If a small organization fails to file an electronic postcard for three consecutive years, it will lose its tax exempt status. Organizations that have not filed an annual return for the past three years, such as form 990, 990-PF or 990-N, have until May 15, 2010 to file or risk jeopardizing their exempt status.

For most small exempt organizations the solution is a simple one – visit the IRS e-Postcard website and file an annual statement. The filing is free and the process takes less than 10 minutes to complete. A small organization will need to provide the following eight pieces of information:

  • The organization’s Employer Identification Number (EIN)
  • The organization’s legal name
  • Any other names the organization uses to do business (DBA name)
  • Whether the organization has been terminated or gone out of business
  • Whether the organizations gross receipts are normally $25,000 or less
  • The organization’s mailing address (or P.O. box), city, state and zip code
  • The organization’s website address (if any)
  • The name and address of one of the organization’s principal officers

After submitting an e-postcard, the small organization will be part of a searchable database made available to the public.

Some small organizations, such as private foundations and section 509(a)(3) supporting organizations, are not eligible to file an e-postcard even if it has annual gross receipts less than $25,000. Exempt organizations are advised to consult with a tax professional if it is unclear whether they are eligible to file an e-postcard or must file another version of form 990.

Please visit the IRS website for more information on annual electronic filing requirements for small organizations, or contact attorneys John Herrinton or Richard Zmijewski at (313) 496-1200.