Friday, May 14, 2010
In what appears to an all out effort, the Internal Revenue Service is doing all it can to get the word out regarding the automatic revocation of tax-exempt status that will hit nonprofit organizations that fail to file three required annual returns in a row. Enacted by Congress as part of the Pension Protection Act of 2006 for tax years beginning after 2006, this penalty now has particularly urgency because Monday, May 17th will be the due date for the third return for organizations with calendar fiscal years (absent an extension request) since this provision went into effect. What makes this penalty especially a trap for the unwary is that at the same time Congress imposed on almost all tax-exempt organizations other than churches and church-related entities the requirement to file some type of annual return. Previously exempt organizations that normally had annual gross receipts of no more than $25,000 did not have to file any return unless they were a private foundation; starting with years beginning after 2006, they have to file at least the online Form 990-N. No one knows how many organizations will be affected, or how many such organizations are inactive or non-existent so revocation will not matter, but estimates are in the hundreds of thousands.