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What's Happening?
Beginning with the May 17, 2010, filing deadline, the IRS will begin revoking the tax-exempt status of nonprofits required to file an annual return (Form 990-N, 990-EZ, 990, or 990-PF) that have failed to do so for three consecutive years.
Who Should Be Aware of These Changes?
•Nonprofits required to file an annual return that have not done so for three consecutive years. Small organizations with revenues of $25,000 or less are particularly vulnerable, since before 2008, they were not required to submit annual filings to the IRS, and they may not be aware of the requirement.
•Grantmakers and others who need to verify nonprofits' status to know which ones are exempt and which are not.
•Donors who want to ensure that their charitable contributions will be deductible—and that the organizations they are supporting are in compliance with the law.
Why Is the IRS Revoking Tax Exemptions?
The Pension Protection Act of 2006 requires the IRS to revoke the federal tax exemption of any organization required to file an annual return that has failed to do so for three consecutive years. Nonprofits that wish to have their exemptions reinstated will be required to reapply to the IRS for tax-exempt status, a process that can take several months and requires a user fee of $400 or $850.
The IRS will start issuing the revocation notices in 2011.
How Much of an Impact Will the Revocations Have?
GuideStar estimates that 350,000 to 400,000 nonprofits are in danger of losing their exemptions. A large number of these organizations are smaller nonprofits that previously were not required to file an annual return because their gross revenues were $25,000 or less. These nonprofits now must file Form 990-N, which the IRS created in response to the Pension Protection Act.
What Happens if I Give to a Charity That Has Lost Its Exemption?
As long as the nonprofit has not received a revocation notice from the IRS, your gift will still be deductible to the extent allowed by law. Donations made to a charity after it has received a revocation notice will no longer be tax deductible, however.
Other Helpful Points
•Religious organizations are still exempt from filing Form 990. See the list of filing exceptions
•The Form 990-N ePostcard is not for everyone. If your organization is not a 501(c)(3) private foundation and has gross receipts normally in excess of $25,000, you must file a Form 990-EZ or 990. Private foundations of all income levels must file a Form 990-PF. Learn more about filing thresholds
•If your organization is included in a group exemption, your parent organization may be including your financial information in its group return. Check with your parent organization or your accountant to be sure that the annual filings are being made. If your group exemption filings are up to date, you do not have to file separately.
•If your organization's exemption is revoked, the only way to reinstate it will be to reapply for tax exemption at a fee of as much as $850.
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