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Oct 14, 2010

Revocation of Your Tax-Exempt Status

Critical Information for At- Risk Nonprofits

I just returned from Wheeling, West Virginia where the Mideast Regional Conference of Easter Seals was held. The event was held at Oglebay- wonderful scenery; I wish I could have stayed longer. The conference allowed me to provide an overview of how the business cycle, recessions and recoveries have affected nonprofits, and how the nonprofit business model needs to respond. We had an excellent discussion of the difficulty of linking mission to money but also its importance to the financial stability of nonprofits. It was also a good opportunity to highlight the changes in government and philanthropic funding of nonprofits and how those changes have weakened the nonprofit sector. Thanks to the Easter Seals and all of the conference attendees for a great weekend.

In other news, the IRS has just issued new instructions for the Form 990 for reporting years beginning after 2009. The most significant change is that the penalty for not filing a Form 990 for three consecutive years will now result in automatic revocation of tax-exempt status.  Most of the other changes to the 990 instructions are clarifications, but new to filers is the use of business activity codes for each type of revenue.  

October 15 is the due date for small nonprofit organizations at risk of losing their tax-exempt status to submit missing 990 reports for the past three years. Small nonprofit organizations at risk of losing their tax-exempt status because they failed to file the required returns for 2007, 2008 and 2009 can preserve their status by filing returns by Oct. 15 under the one-time relief program. The IRS has posted a special page of the names and last-known addresses of these at-risk organizations, along with guidance about how to come back into compliance. The organizations on the list have return due dates between May 17 and Oct. 15, 2010, but the IRS has no record that they filed the required returns for any of the past three years.

Two types of relief are available for small exempt organizations — a filing extension for the smallest organizations required to file Form 990-N, Electronic Notice (e-Postcard) , and a voluntary compliance program (VCP) for small organizations eligible to file Form 990-EZ, Short Form Return of Organization Exempt From Income Tax. Small organizations required to file Form 990-N simply need to go to the IRS website, supply the eight information items called for on the form, and electronically file it by Oct. 15. That will bring them back into compliance.

Under the VCP, tax-exempt organizations eligible to file Form 990-EZ must file their delinquent annual information returns by Oct. 15 and pay a compliance fee. Details about the VCP are on the IRS website, along with frequently asked questions.