This issue may have already come up because of UW-Extension’s association with 4-H and HCE Clubs, so you maybe aware of it.
But just to make sure you are aware, if a nonprofit organization does not file a 990, 990-EZ, 990-N form by at the latest May 15, 2010, they will lose their nonprofit designation from the IRS and need to reapply for nonprofit status. Attached is a press release that you can modify if you’re interested to let people know in you county.
In response to shady activities of a few nonprofit organizations, Congress in 2006/2007 changed the filing requirements for nonprofit organizations.
There is a new 990 and new 990-EZ form, but more significantly there is now a requirement that ALL nonprofit organizations must file a 990, 990-EZ, or 990-N report at the end of each fiscal year starting with fiscal year 2007. (For some organizations the 2007 fiscal year may end in a month other than January, so this applies whenever their fiscal year ends, which could be March or June for example.)
Previously, if a nonprofit organization had gross receipts less then $25,000, they did not need to file any paper work with the IRS. Now if an organization makes less than $25,000, the organization must electronically file a form 990-N. It is not a difficult form to fill out; basically it asks the organizations EIN number, current address, principle officer, and a yes/no statement saying your organization had less than $25,000 in gross receipts. The form is at Organizations with gross receipts more that $25,000 are required to file a 990EZ or 990 form.
Why should you care?
After May 15, 2010 (The deadline for fiscal year 2009 filing, assuming the fiscal year is January to December.), any nonprofit organization that has never filed a 990, 990EZ, or 990N form will lose their IRS designated nonprofit status. All nonprofit organizations must file a 990, 990-EZ, or 990-N form by the 15th day of the 5th month following the end of their fiscal year. This includes ALL nonprofit organizations, including 501(c)3 Charitable organizations; 501(c)5 labor organizations, like unions; 501(c)6 membership organizations, like Chambers of Commerce; and 501(c)7 social and recreation clubs, like a possibly a bowling league or quilt guild. The required filing is more likely to affect small local nonprofits, like the local snowmobile club or lakes association, because previously they were not required to file any forms with the IRS.
So what if an organization loses its nonprofit status with the IRS?
The organization will need to pay income tax on its profits at the end of the year. The profit is the money the revenue the organization has left after expenses. Failure to file a 990 form can amount to thousands of dollars in taxes and penalties, if the organization is caught. In addition, charitable contributions to the organization, particularly a 501(c)3 organization, will no longer be deductible from individual donor’s personal income taxes. Also, the organization is unlikely to receive a grant from a private foundation or government entity, who usually prefer 501(c)3 organizations. To reinstate its exempt status, an organization will need to go through the entire application process as if they were applying for the first time, including paying the application fee and filing out the 30 page application form for nonprofit status. There is also no guarantee that nonprofit status will be reinstated.
What is the IRS doing to let organizations know they need to file a 990 form?
The IRS may have sent out a letter or postcard informing nonprofits of the filing requirements. If they did send out a notice to all of the nonprofits it the country, they would have sent it to the address of chief officer or the person who originally filed the paperwork for nonprofit status, which may have been done ten, twenty, thirty, or more years ago. This especially is the case with the small local nonprofits that have not corresponded with the IRS since their nonprofit status was granted. I asked a few of the small local nonprofits in the county if they received any notice from the IRS and they had not. The IRS also has the notice of the filing requirement on their website. Of course, no one would know that unless they went looking for it. It is doubtful that the small local nonprofit that until now has not been required to file any paperwork with the IRS will just happen to go to the IRS’s website and read through the website to see that they are required to file a 990N. This process will help the IRS clear their books of defunct nonprofits. And, with the hundreds of thousands or millions of nonprofits in the US, maybe they unconsciously even want some of the smaller budget nonprofits to just go away, because they are so hard to keep track of. For example from a national perspective, the Friends of the Hancock Public Library with an annual budget of well under $25,0000 is fairly insignificant, but locally it is important to keep the local library.
Basically, the IRS is doing very little or nothing to let small local nonprofits know of the filing requirement.
Patrick Nehring, AICP
Community Agent
UW-Extension Waushara County
PO Box 487
209 S Ste Marie Street
Wautoma, WI 54982
(920) 787-0416
www.uwex.edu/ces/cty/waushara
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5 comments:
Patrick,
Just a few clarifications. There are added reporting requirements that go along with being designated a nonprofit organization. In the determination letter from the IRS, organizations receive notice that they must notify the IRS of any material changes. See: http://www.irs.gov/charities/foundations/article/0,,id=141382,00.html
The state has the same problem. ALL incorporated not-for-profit corporations in the state are required to file an annual report. A high percentage of organizations fail to do this….because they fail to file a “change of registered agent” form with DFI. The state has no way of contacting them, because the organization has not provided them the information that would allow them to do this.
Finally, nonprofits (regardless of this change in reporting) should NOT assume that they don’t have to pay taxes on their income. Many nonprofits bay taxes on their “unrelated business income” (The UBIT tax). I am not an accountant or an attorney, but essentially all income not related to the core mission of the organization is taxable.
Two suggestions. I think there are several organizations that could assist with this public information task. The Wisconsin Department of Financial Institutions, the Wisconsin Nonprofits Association, and some of the University Nonprofit centers like the one at Milwaukee and Madison. I will forward on your information to see if they would assist with this task. Secondly, I purchase the DFI list every few years and could generate a list of nonprofit organizations for educators that would like to mail a notice to their local nonprofits (let me know the zip codes you are interested in…there is no “county” field in the database. This database also tells you which of your nonprofits are delinquent in the filing of their annual report with DFI and there could be an educational role there as well.
To avoid posting numerous e-mails to numerous all lists, I have a copy of this e-mail and response at the following blog:
Andy
I have a clarifying question - so nonprofits do NOT need to file retroactive to FY2007? They only need to file for the first time in 2010 because of the three consecutive years thing, right? And, going forward they do NOT need to file EVERY year, but at least once every three years (although that wouldn't be good practice?)
thanks! Claire Thompson
Draft Media Release
Contact: Patrick Nehring (920) 787-0416
Email: patrick.nehring@ces.uwex.edu
Date: June 3, 2009
Will your nonprofit organization lose its nonprofit status?
In 2004, in response to questionable activities of board members and executive directors of a few nonprofit organizations, the US Senate Finance Committee convened a panel to make recommendations on how to prevent the abuse of the use of income tax exemption designation by organizations recognized as nonprofits by the Internal Revenue Service (IRS). In response to the commendations from this panel and the Pension Protection Act of 2006, the IRS changed the filing requirements of nonprofits. This included changing the 990 Form, creating a new 990-EZ form, and a 990-N e-file form. This is the first major revision since 1979. All nonprofit organizations are required to annually file a 990, 990-EZ, or a 990-N form.
All nonprofit organizations must file a 990, 990-EZ, or 990-N report by the 15th day of the 5 month after the end of each fiscal year starting with fiscal year 2007. For example: if an organization’s fiscal year is January to December, they need to file a 990, 990-EZ, or 990-N report by May 15. If the organization’s fiscal year is April to March, they need to file by September 15.) Previously, if a nonprofit organization had gross receipts less then $25,000, they did not need to file any paper work with the IRS. Now if an organization makes less than $25,000, the organization must electronically file a form 990-N. It is not a difficult form to fill out; basically it asks the organizations EIN number, current address, principle officer, and a yes/no statement saying your organization had less than $25,000 in gross receipts. The form is at http://www.irs.gov/charities/article/0,,id=169250,00.html. Organizations with gross receipts more than $25,000 are required to file a 990-EZ or 990 form.
If an organization fails to file a 990, 990-EZ, or 990-N form for three consecutive years, they will lose their IRS designated nonprofit status. Therefore, if an organization has never filed a 990, 990-EZ, of 990-N, they could lose their nonprofit status on May 15, 2010, the deadline for fiscal year 2009 filing, assuming the fiscal year is January to December. This includes ALL nonprofit organizations, including 501(c)3 Charitable organizations; 501(c)5 labor organizations, like unions; 501(c)6 membership organizations, like Chambers of Commerce; and 501(c)7 social and recreation clubs, like a bowling league or quilt guild. The required filing is more likely to affect small local nonprofits, like the local snowmobile club or lakes association, because previously they were not required to file any reports with the IRS.
If a nonprofit organization loses its nonprofit status, the organization will need to pay income tax on its profits at the end of the year. The profit is the revenue the organization has left after expenses. Failure to file a 990 form can amount to thousands of dollars in taxes and penalties, if the organization is caught. In addition, charitable contributions to the organization, particularly a 501(c)3 organization, will no longer be deductible from individual donor’s personal income taxes. Also, the organization is unlikely to receive a grant from a private foundation or government entity, who usually prefer 501(c)3 organizations. To reinstate its exempt status, an organization will need to go through the entire application process as if they were applying for the first time, including paying the application fee and filling out the 30 page application form for nonprofit status. There is also no guarantee that nonprofit status will be reinstated. For more information see http://www.irs.gov/charities/article/0,,id=96103,00.html or contact the Waushara County UW-Extension Office at (920) 787-0416 or patrick.nehring@ces.uwex.edu.
Claire,
In the link that Patrick provide in the media release ( http://www.irs.gov/charities/article/0,,id=169250,00.html ), it says:
"The first e-Postcards are due in 2008 for tax years ending on or after December 31, 2007. The e-Postcard is due every year by the 15th day of the 5th month after the close of your tax year. For example, if your tax year ended on December 31, 2007, the e-Postcard is due May 15, 2008. You cannot file the e-Postcard until after your tax year ends".
Later it says,
"If you do not file your e-Postcard on time, the IRS will send you a reminder notice but you will not be assessed a penalty for late filing the e-Postcard. However, an organization that fails to file required e-Postcards (or information returns – Forms 990 or 990-EZ) for three consecutive years will automatically lose its tax-exempt status. The revocation of the organization’s tax-exempt status will not take place until the filing due date of the third year".
I interpret that to mean that I would suggest going back and filing the electronic postcard for the 2007 tax year (that should have been filed in 2008) ASAP and continue to do this annually.
Andy
More than 6,000 small nonprofit organizations in Wisconsin, including about 650 in Dane County, at risk of losing their tax-exempt status now have until Oct. 15 to comply with a federal filing requirement.
Small nonprofit groups must file IRS form 990-N, which has eight questions and can be filled out online at www.irs.gov. Groups with between $25,000 and $500,000 in receipts or less than $1.25 million in assets that can file a 990-EZ form also were given an extension to Oct. 15, though with a penalty of between $100 and $500. Larger organizations that must file regular form 990 or 990-PF are not eligible for the extended deadline.
Groups that don't file by Oct. 15 will lose their tax-exempt status and must go through the time-consuming process of reapplying for it. Any contributions they receive between Oct. 15 and the renewed exemption date may be taxable.
The IRS plans to publish a list of revoked groups in early 2011. Donors to groups that lose their status are protected for tax deduction purposes until that list is published.
Source: http://host.madison.com/wsj/news/local/article_c45c066e-9904-11df-9b16-001cc4c03286.html
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