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IRS Releases Guidance for Small Nonprofits at Risk of Losing Tax-Exempt Status

On July 26, 2010, the IRS released guidance on filing relief for Form 990-N and 990-EZ filers in danger of losing their tax exemptions because they have not filed for three consecutive years. This one-time relief is available to small organizations whose filing deadlines fall on or after May 17, 2010, and before October 15, 2010. All returns filed under this program are due no later than October 15, 2010.

Relief is not available to Form 990 and 990-PF filers. The guidance states, "This one-time relief benefits Form 990-N (e-Postcard) and Form 990-EZ filers only. Organizations required to file Form 990 or Form 990-PF are not eligible and are automatically revoked if they fail to file for three consecutive years."

Read the statement

Background

The Pension Protection Act of 2006 requires the IRS to revoke the tax exemption of any nonprofit required to file an annual information return (Form 990-N, 990-EZ, 990, or 990-PF) that has not done so for three consecutive years. Although the requirement applies to organizations of any size whose filings are at least three years in arrears, many of the smallest nonprofits have never been required to file before and may not be aware of the need to do so now.

The first deadline to trigger revocations occurred May 17, 2010. On May 18, when it became clear that many small nonprofits had missed the deadline, IRS commissioner Doug Shulman stated, "I want to reassure these small organizations that the IRS will do what it can to help them avoid losing their tax-exempt status." He promised that the IRS would issue guidance on what the nonprofits would need to do to retain their exemptions. That guidance was issued July 26.

For more background and quick links to information related to the revocations, see our LINKnonprofit resource center. We have also published a report, "Automatic Revocation of Nonprofits' Tax-Exempt Status: What Nonprofits, Grantmakers, and Donors Need to Know," on the issue. Written by Linda M. Lampkin of ERI Economic Research Institute, the report is a one-stop reference guide that includes the July 26 IRS guidance.

Download a free copy of the report

What the Guidance Says

The guidance contains separate instructions for Form 990-N and Form 990-EZ filers. Nonprofits with gross receipts of $25,000 or less during tax years beginning in 2007, 2008, and 2009, qualify to file Form 990-N. The filing thresholds for 990-EZ filers, however, differ for these three tax years. See the IRS list of filing thresholds

Remember that filing relief is available only to 990-N and 990-EZ filers whose filing deadlines fall on or after May 15, 2010, and on or before October 15, 2010, and that returns filed under this program must be submitted no later than October 15, 2010.

Form 990-N Filers

Organizations that qualify to file Form 990-N (also known as the ePostcard) can file either Form 990-N, which must be completed and submitted electronically, or a paper Form 990-EZ. Those that opt to file an EZ should note, "Filed in lieu of Form 990-N," at the top of the form and on the envelope. Mail the return to:

Internal Revenue Service
M/S 1114
P.O. Box 12610
Ogden, UT 84412

Read the instructions for Form 990-N filers

Form 990-EZ Filers

The IRS is offering a Voluntary Compliance Program for 990-EZ filers that have failed to file for three consecutive years. To participate in this program, organizations must:

  • qualify to file Form 990-EZ for each of the tax years beginning in 2007, 2008, and 2009;
  • sign the Voluntary Compliance Program checklist;
  • file EZs for all three years;
  • write, "Filing Relief VCP," on each return and the envelope;
  • pay a compliance fee of $100, $200, or $500, determined by the amount of their gross revenues in 2009;
  • and mail the returns, checklist, and compliance fee in a single envelope to:

    Internal Revenue Service
    M/S 1114
    P.O. Box 12610
    Ogden, UT 84412

Read the instructions (including compliance fee information) for Form 990-EZ filers

Conclusion

In the words of Bob Ottenhoff, GuideStar's president and CEO, "The IRS's one-time filing relief program for small exempt organizations is a wonderful opportunity for these organizations to come back into compliance." We hope all organizations that are at risk and qualify for this program will take advantage of it.

 

Related Article

How to Find Out if Your Nonprofit Is in Danger of Losing Tax-Exempt Status

 

Suzanne E. Coffman, August 2010
© 2010, GuideStar USA, Inc.

Suzanne Coffman is GuideStar's editorial director and editor of the Newsletter.

Topics: Policy