Agency program looks to ease burden of automatic-loss-of-exemption law; still, Form 990 information returns for many due by OCTOBER 15, 2010 – or else

Those soft-touches over at the Internal Revenue Service are at it again: they have set up a “Filing Relief/Voluntary Compliance Program” for small tax-exempt organizations (not including churches or church-related organizations). The goal: to give such folks a chance to avoid the time-consuming and complex process which they would have to undertake to reinstate their tax-exempt status . . . if, that is, they lost that status earlier this year thanks to a relatively obscure 2006 law.

We wrote about this issue last May. You may recall that, back then, the IRS made a big effort to alert tax-exempt organizations (OTHER THAN churches or church-related organizations, who don’t need to worry about all this) of the need to file Form 990 informational returns. That requirement had been on the books for a couple of years already, but there was considerable urgency associated with it last Spring. That’s because Congress, in mandating the reporting requirement (in the Pension Protection Act of 2006), gave the law some sharp and ugly teeth: any tax-exempt organization (again, NOT INCLUDING churches/church-related organizations) which failed to file Form 990 reports for three consecutive years would automatically and immediately lose its exemption. 

Since 2008 would have been the first year in which such reports were due, 2010 was the first year in which any organization subject to the requirement could have missed three reports in a row. And the reports’ due date for organizations using the calendar year as their tax year was May 17.  (The filing due date for annual tax returns is the 15th day of the 5th month after an organization’s tax year ends.)

Apparently the IRS was concerned that there were a significant number of such entities at risk, so it went all out to spread the word in the weeks prior to May 17. The May 17 deadline came and went, and (according to the IRS) more than 300,000 organizations still failed to get their reports in as required. Cream puff push-overs that they are, the IRS has decided to give entities which missed the deadline yet another swing at the ball – in the form of a two-part program that allows them to seek reinstatement of their tax exempt status without starting all over again from scratch with the application process for tax-exempt status. 

The first component of the program affects organizations with gross receipts of less than $25,000 per year (again, churches or church-related entities are not included here). They need only file an e-postcard tax return (IRS Form 990-N) to stay tax exempt.

The second part of the relief program targets larger organizations that qualify to file their annual tax returns on IRS Form 990-EZ. These entities must jump though a few more hoops and pay a small compliance fee. But even this more complicated process is much less burdensome than applying all over again for tax-exempt status.  The deadline to take advantage of either of these easy-pitch second chances is October 15.

Some tax-exempt organizations – the ones whose tax year is not the same as the calendar year –  may not have automatically lost their tax-exempt status yet. The IRS website includes lists (organized by state) of organizations which are “at risk” of automatic expiration. (According to the IRS, the lists include “organizations for which the IRS does not have a record of a required annual filing for 2007 and 2008, and whose 2009 return, due on or after May 17 and before October 15, 2010, has not yet been received.” Note, however, that the IRS specifically warns that its lists may be incomplete, and that organizations not included in the lists may nonetheless be “at risk”.) A word to the wise: a quick look-see through a few of the lists on the IRS website found the names of some broadcasters who may be “at risk”.

We’re not tax lawyers – we don’t even play tax lawyers on TV – so anyone possibly subject to the automatic loss of exemption should consult tax counsel pronto. You can also get more information about the IRS’s voluntary compliance program at its website. Tax-exempt status confers many benefits upon an organization. A few minutes spent checking to make sure that a tax-exempt organization (OTHER THAN churches or church-related organizations) with which you are involved is in compliance with its reporting obligations could allow it to avoid losing its tax-exempt status.

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