May 15 is a very important date, especially for new or small tax-exempt nonprofits that haven’t been filing a 990 annually. Prior to the Pension Protection Act of 2006, nonprofits with budgets under $25,000 were exempt from filing a 990, but no more.
In separate articles over the past week, the Chronicle of Philanthropy, the New York Times, and Guidestar covered this issue and its potential impact on the nonprofit sector very soon.
“As many as one-fourth of all nonprofits could lose tax-exemption” by failing to file an annual 990 since the filing became mandatory for all tax-exempt nonprofits in 2006,” according to an article in the Chronicle of Philanthropy on April 22, 2010. GuideStar estimates that 350,000 to 400,000 nonprofits are in danger of losing their exemptions.
“The IRS will begin revoking exemptions on May 16, 2010, but will wait until 2011 to send revocation notices. The IRS is essentially giving delinquent nonprofits a six-month grace period in which to file their annual returns,” Bob Ottenhoff, president and CEO of GuideStar explained. “We hope the organizations in danger of losing their exemptions will take advantage of this opportunity. Ultimately, the revocation process will benefit the nonprofit sector by weeding out defunct organizations and nonprofits that are not meeting their reporting responsibilities. In the short run, however, it will cause hardship for some organizations.”
Grantors and suppliers will need to confirm, annually, that all the charities they give money or in-kind products or services to are currently eligible to receive them. Donors will, also annually, need to confirm eligibility of organizations in order to secure a tax-exemption for their gifts.
Not ‘Off the Hook’
Why the requirement for every charity to file a 990 annually? “Congress is not going to let the IRS off the hook for its job of regulating the [nonprofit] sector and ensuring that the sector is not only equipped to do the deeds that it sets out to do but also that the federal tax subsidy is used correctly” according to Sarah Hall Ingram, top nonprofit regulator for the IRS. (Chronicle)
Ms. Ingram said she views good governance practices “as being all about risk management,” both for charities and for the IRS.
So, the time to check your filing status is now! If your organization hasn’t been submitting 990s since 2006 because you didn’t think you needed to, go to the IRS website for all the information, instructions, and forms you will need to assure you file before May 15, 2010.