Brian Todd

Background

Prior to the enactment of the Pension Protection Act of 2006 (PPA), tax-exempt organizations with gross receipts of $25,000 or less were not required to submit information returns. The PPA requires small tax-exempt organizations not previously required to file Form 990 or 990-EZ to submit a new annual notice. Form 990-N was created to enable organizations to meet this requirement.

The new filing requirement does not apply to organizations specifically excluded from filing Form 990, including churches, church-related organizations, governmental entities and affiliates of governmental units.

The PPA also states that any tax-exempt organization failing to file required returns for three consecutive years automatically loses its federal tax-exempt status. This new requirement was first effective for returns prepared on 2007 forms (used for tax years beginning in 2007). The filing deadline for Form 990, 990-EZ or 990-N is generally the 15th day of the fifth month after year-end. If a calendar-year organization did not file the required 2007, 2008 or 2009 return by the May 15, 2010, deadline, it was in jeopardy of having its tax-exempt status revoked, though many fiscal-year organizations may not have yet reached the final deadline.

IRS One-Time Special Relief Program

The IRS has extended the May 15, 2010, deadline to October 15, 2010, for small organizations at risk of losing their tax-exempt status because they failed to file returns for 2007, 2008 and 2009.

The IRS has posted a special page with the names and last-known addresses of at-risk organizations. Missouri alone has more than 7,000 organizations on the list.

There are two types of relief available for small tax-exempt organizations. Small organizations required to file Form 990-N simply need to go to the IRS website, supply the eight items called for on the form and electronically file it by October 15. For organizations eligible to file Form 990-EZ, the IRS implemented a voluntary compliance program (VCP). Under the VCP, tax-exempt organizations eligible to file Form 990-EZ must file their delinquent information returns by October 15 and pay a compliance fee. Details about the VCP are available here.

The IRS also indicated that the relief is not available to larger organizations required to file the full Form 990 or to private foundations that file Form 990-PF.

Form 990-N Eligibility

Generally, organizations that normally have gross receipts of $25,000 or less qualify to file Form 990-N. However, a number of organizations are not eligible to file Form 990-N and must complete either Form 990-EZ or Form 990. They include:

• Foreign and U.S. possession organizations
• Sponsoring organizations of donor advised funds
• Controlling organizations described in Section 512(b)(13)
• Section 509(a)(3) supporting organizations
• Section 501(c)(7) and Section 501(c)(15) organizations
• Section 527 political organizations
• Section 4947(a)(1) non-exempt charitable trusts

Form 990-EZ Eligibility

Due to the complexity of the redesigned Form 990, the IRS implemented a three-year phase-in for small organizations to allow more organizations to file Form 990-EZ initially. The thresholds were significantly lower in 2007, the last year before the redesign of Form 990 applicable for 2008 returns. See the table below for the applicable thresholds for filing Form 990-EZ.

Immediate Action Required

If you are aware of an organization at risk of losing tax-exempt status, please take action immediately. If an organization loses its exemption, it will have to reapply with the IRS to regain tax-exempt status. This could negatively impact donors and cause any income received between the revocation date and renewed exemption to be taxable.

Please contact your BKD advisor for further guidance on these filing requirements.