Apostolates at risk of losing tax exempt recognition

Deadline of TODAY catching many off guard

By Jim Hostetler

Many nonprofits are not aware the IRS plans to remove many small 501(c)(3) organizations currently listed in its official database sometime in 2011. Small 501(c)(3)s are those other than a church that average less than $25,000 in annual income and don’t file the annual IRS Form 990 or 990EZ. Any small nonprofit that has received 501(c)(3) recognition by the IRS, but which has not filed any Form 990 or Form 990N in the past 3 years, is at risk.

In 2007, pursuant to a change in the laws by Congress in 2006, the IRS sent letters to small 501(c)(3) organizations informing them of a new annual “electronic” filing requirement called the Form 990N. Small 501(c)(3)s were supposed to begin filing the 990N for the 2007 tax or fiscal year. This first 990N should have been submitted sometime in 2008. Today is the "deadline" for filing a Form 990N. Please contact us immediately if you want us to try to file the form for you TODAY. The LegalWorks Apostolate charges $100 for this service.

Unlike the Form 990, there is no penalty for submitting the E990N late. However, if after 3 years, no E990N report has been filed for any fiscal year, then the IRS will assume that your 501(c)(3) is defunct and remove your organization’s name from its official database of 501(c)(3) organizations (Publication 78). The new requirement is similar to annual or other periodic reports that some states require for corporations. If the state does not receive any report, after so many years, they will assume that the organization is defunct.

Many small 501(c)(3)s received the 2007 letter and have been doing the annual E990N reports. However, people and organizations relocate. No doubt many of the letters sent in 2007 by the IRS went to outdated addresses and were never received by the 501(c)(3)s.

Technically, there is no penalty per se for filing the Form 990N late. But it remains an open question whether a late-filed form will save an organization the hassle of having the IRS determine, at least initially, that the organization is now defunct. The safest course of action for any small 501(c)(3) that has not filed such a report in the last 3 years would be to do so as soon as possible.

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