One-Time Filing Relief Allows Tax-Exempts to File Form 990 By Oct. 15 to Save Exempt Status

In an information release and on its website, IRS has announced that under a one-time relief program small tax-exempt organizations that failed to file returns for 2007, 2008 and 2009 can avoid losing their tax-exempt status by filing a return by Oct. 15, 2010. Two types of relief are available: (1) a filing extension for the smallest organizations (eligible to file Form 990-N); and (2) a voluntary compliance program for small organizations (eligible to file Form 990-EZ).

Filing requirement for tax-exempts. Under Code Sec. 6033(a), most tax-exempt organizations, other than churches, must file with IRS an annual Form 990, Form 990-EZ (Short Form Return or Organization Exempt From Income Tax), or Form 990-PF (Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation), or submit a Form 990-N (Electronic Notification (e-Postcard)). For the 2009 tax year (returns filed in 2010), exempt organizations with gross receipts over $500,000 or total assets over $1.25 million are required to file Form 990 (rather than Form 990-EZ). Under the discretionary exemption in Code Sec. 6033(a)(3)(B), IRS provides that exempt organizations whose annual gross receipts aren't normally in excess of a specified amount file the simplified Form 990-N. Starting with the 2010 tax year, IRS will increase from $25,000 to $50,000 the filing threshold for organizations required to file Form 990-N.

Three year filing rule. Under the 2006 Pension Protection Act (PPA), a non-church exempt organization's failure to file Form 990 for three consecutive years will result in the revocation of the organization's exempt organization status under Code Sec. 501(a) on and after the date IRS has set for filing the third annual return or notice. (Code Sec. 6033(j)(1)) The PPA filing requirement has been in effect since the beginning of 2007, which makes 2009 the third consecutive year under the new law. Thus, absent a relief measure, any exempt organization that fails to file for 2007, 2008 and 2009 automatically loses its federal tax-exempt status.

Form 990-series information returns are due on the 15th day of the fifth month after an organization's fiscal year ends. For organizations using the calendar year as their fiscal year, May 15 is the deadline. Since May 15 fell on a Saturday, the deadline this year was Monday, May 17.

If an organization loses its exemption, it ordinarily must reapply with IRS to regain its tax-exempt status, and any income received between the revocation date and renewed exemption may be taxable.

One-time relief. In IR 2010-87, IRS announced that two types of relief are available for small tax-exempt organizations that would lose their exempt status under the three-year filing rule: (1) a filing extension for the smallest organizations required to file Form 990-N; and (2) a voluntary compliance program for small tax-exempt organizations eligible to file Form 990-EZ. IRS has provided details about the relief program on its website, along with Frequently Asked Questions (FAQs) (see http://www.irs.gov/charities/article/0,,id=225954,00.html).

IRS advised that tax-exempt organizations eligible to file Form 990-N need only go to its website, supply the eight information items called for on the form, and electronically file it by October 15. That will bring them back into compliance.

Under the voluntary compliance program, IRS advises that tax-exempt organizations eligible to file Form 990-EZ must file their delinquent annual information returns by October 15 and pay a compliance fee. IRS says that the compliance fee is in lieu of taxes, penalties, and interest that otherwise would be incurred because of the failure to file. If the organization's gross receipts (as reported on the 2009 information return) are $100,000 or less, the compliance fee is $100; if they are $100,001 to $200,000, the fee is $200; and if they are $200,001 to $499,999, the fee is $500. The payment of the compliance fee doesn't affect the organization's liability for any taxes that would be imposed even if they had filed their returns, including but not limited to unrelated business income tax and employment taxes.

IRS cautions that this relief isn't available to larger organizations required to file Form 990 or to private foundations that file Form 990-PF.

List of noncompliant organizations. To further alert tax-exempt organization to the problem, IRS has also posted on its website the names and last-known addresses of at-risk organizations with return due dates between May 17 and Oct. 15, 2010 for which IRS has no record that the required returns have been filed for the past three years (see http://www.irs.gov/charities/article/0,,id=225889,00.html). IRS will keep this list on its website until Oct. 15, 2010. Organizations that have not filed their required returns by that date will have their tax-exempt status revoked. IRS will publish a list of these revoked organizations in early 2011.

IRS warns, however, that the list may be incomplete, and that certain organizations may be at risk even though their names don't appear. In addition, the list may include organizations that were required to file Form 990 or Form 990-PF and so aren't eligible for the relief program, as well as organizations whose filing dates have not yet occurred.

IRS advises that donors who contribute to at-risk organizations are protected until this final revocation list is published.