Many Tax-Exempt Organizations Risk Losing Their Tax-Exempt Status
Tax-Exempt Organizations Alert 05/04/10
Even very small organizations must file annual information returns - most by May 15! The Pension Protection Act of 2006 provides that most tax-exempt organizations, other than churches, are required to file annual information returns. Beginning with 2007, those that do not file the required annual information return for three consecutive years will automatically lose their tax-exempt status. Non-filers will be subject to automatic revocation of their tax-exempt status for the first time beginning in 2010. If an organization loses its exemption for failure to file an annual information return, it will have to reapply (and pay related user charges) to regain its tax-exempt status. Any income received between the revocation date and the renewed exemption date may be taxable.
If you are on the board or otherwise involved with a very small organization that may be unaware of this relatively new requirement, we encourage you to alert the treasurer or other responsible person to the requirement, as a failure to file may prove expensive.
For 2009, organizations with gross receipts of $25,000 or less must file either the Form 990-N, the "electronic postcard" return, or a full return. This was a new requirement for these small organizations as of 2007. A Form 990-N is filed electronically at this website. The return itself is short and simple and requires the organization to provide the following information: its tax period (e.g., calendar year), its legal name and mailing address, its employer identification number, its website address (if any), its doing business name (if any), whether the organization has terminated, its principal officer's name and address, and whether its gross receipts fall below the filing threshold. Beginning in 2007, supporting organizations (i.e., organizations exempt from taxation because they are described in Code Section 509(a)(3)), regardless of financial activity, must file a Form 990 or Form 990-EZ annually.
For 2009 returns, organizations with gross receipts greater than $25,000 and less than $500,000 and that have assets totaling less than $1.25 million may file either the Form 990-EZ or the Form 990. Organizations with either gross receipts of $500,000 or more, or total assets of $1.25 million or more, must file the Form 990 for 2009. Please note that these financial activity thresholds will change for 2010. The updated thresholds are available here. Private foundations, regardless of financial activity, must annually file a Form 990-PF. Each of these forms must be filed with the Internal Revenue Service by the 15th day of the fifth month after the end of the organization's accounting period, unless an extension is requested (that is, by May 15 for an organization on a calendar year).
This update is intended as a general summary of legal matters and not as specific advice to any particular client. If you have any questions concerning the subject matter of this update, please contact your Quarles & Brady attorney.