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Monday, April 26, 2010


Most organizations that are exempt from Federal income tax are required to file a Form 990 or some variation thereof on an annual basis. Previously, smaller organizations were exempt from the filing requirements. Smaller organizations can often still file with a short-form filing on an e-postcard Form 990-N.

The Pension Protection Act of 2006 requires that non-profit organizations that do not file a required information form for three consecutive years automatically lose their Federal tax-exempt status. This requirement has been in effect since the beginning of 2007. See IR-2010-10, Jan. 21, 2010.

These returns are generally due by May 15 of the year following the year for which reporting is due for those organizations that are on a calendar year reporting cycle. This means that a lot of returns are due soon.

The problem is that there are a tremendous number of non-profits with exempt status that have not been filing the required Forms 990. If they do not file (or extend and later timely file) by May 15, this will be the third year of nonfiling and will likely result in loss of exempt status. The New York Times, in an April 22, 2010 article, estimates that the number of organizations that are at risk of losing their exemptions is over 400,000.

Most larger organizations know of, and comply with, their filing obligations. Therefore, it is likely that most of the threatened organizations are smaller organizations. By reason of their small size, these are the organizations that can least afford the cost of preparing and submitting new applications to reinstate their exempt status.

The New York Times article opines that Congress should have only mandated that the exempt status of these organizations been suspended, and not revoked. This would make it easier to reinstate them. Arguably, however, the IRS should have regulatory authority for providing an expedited method of reinstating the status of these organizations short of a full application process.

Advisors who know of noncompliant small organizations would be doing them a great favor of reminding them to do their filings this year in a timely manner.

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