Thursday, October 7, 2010

Warning – Your 501(c)(3) is about to lose its tax exemption

This alarmist headline is something that should be shouted to thousands upon thousands of small tax-exempt organizations across the United States. Come October 15, 2010, many small tax-exempt organizations will automatically lose their federal tax exemption unless they fulfill certain filing requirements.

In the Pension Protection Act of 2006, it became mandatory that most tax-exempt organizations file an annual return or file an electronic notice.  Failing to do so for three consecutive years automatically triggers a loss of exemption. October 15, 2010 marks the first three year final deadline for these organizations.

Small tax-exempt organizations (those with $25,000 or less in annual receipts) can solve this problem by visiting the IRS website (http://www.irs.gov/) and filing a Form 990-N.  Doing so is relatively simple and can prevent a host of problems. Organizations that lose their tax exemption will have to reapply with the IRS to regain their tax-exempt status.  If you have been through the application proces before, you know it can be a relatively arduous process.  The loss of exemption and reapplication may also call into jeopoardy the charitable contribution deduction of an organization's donors.

The IRS has compiled a list of organizations that they believe to be at risk. That list can be found on the IRS website by clicking here

Additional information concerning the potential loss of tax-exempt status and remedial filing requirements can be found here, here and here

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