Hundreds of thousands of small nonprofit organizations are at risk of losing their tax-exempt status because they failed to file required informational returns for 2007, 2008, and 2009. The Internal Revenue Service (IRS) is offering an opportunity for these organizations to preserve their tax-exempt status by filing delinquent returns by October 15, 2010. If you are a Board member of a non-profit organization, this is an opportune time to inquire of whether your organization is compliant. The IRS posted the name and last-known address of these at-risk organizations on its website.
The Pension Protection Act of 2006 changed reporting for tax-exempt organizations, starting the beginning of 2007. All tax-exempt organizations, other than churches and church-related organizations, must now file a yearly return with the IRS. Tax-exempt organizations failing to satisfy annual filing requirements for three consecutive years automatically lose their tax-exempt status. Loss of exempt status means an organization must file income tax returns and pay income taxes, and its contributors will not be able to deduct donations.
Organizations eligible for Forms 990-N and 990-EZ (explained below) qualify for the catch-up IRS filings. Although exceptions exist, tax-exempt organizations whose annual gross receipts are normally $25,000 or less are allowed to electronically submit a simple Form 990-N, also known as the e-Postcard. Completing the e-Postcard requires only the eight items listed below:
- Employer Identification Number (EIN), also known as a Taxpayer Identification Number (TIN).
- Tax year
- Legal name and mailing address
- Any other names the organization uses
- Name and address of a principal officer
- Web site address if the organization has one
- Confirmation that the organization’s annual gross receipts are normally $25,000 or less
- If applicable, a statement that the organization has terminated or is terminating (i.e., going out of business)
Organizations for which Form 990-N is required should go to the IRS Web site, supply these eight information items, and electronically file the form by Oct. 15.
Organizations with gross receipts less than $ 500,000 and total assets less than $1,250,000 can file Form 990-EZ. The catch-up program for these non-profits requires (i) the delinquent forms to be filed by October 15, 2010 and (ii) a fee be paid.
Organizations having more than the Form 990-EZ limitations must file a Form 990, and are not eligible for the automatic catch-up program. Private foundations must file form 990-PF, regardless of their size.
Many non-profit organizations forget additional California filing requirements. These California requirements include:
- California Form RRF-1, to be filed with the California Attorney General within 4 ½ months after the end of the fiscal year – If gross receipts or total assets over $25,000, then a copy of whatever version of IRS Form 990 is applicable to that non-profit must be given to the California Attorney General.
- California Form 199, to be filed with the Franchise Tax Board (FTB) within 4 ½ months after the end of the fiscal year – This is generally required of all tax-exempt organizations having receipts over $25,000. A portion of this form can be met by providing a copy of the organization’s applicable Form 990 and Form RRF-1.
- California Form 109, to be filed with the Franchise Tax Board within 4 ½ months after the end of the fiscal year. This is required only if the organization obtained more than $1,000 in gross unrelated business income. California Form 100 is required for homeowners’ associations and political organizations having only $100 of taxable revenues.
- California Form SI100 – A disclosure of a nonprofit organization’s officers’ names and addresses. This is to be filed biennially with the California Secretary of State, and updated whenever the reported information changes. The form is due during the month that the organization filed its original Articles of Incorporation, or the five months immediately preceding it.
California also has tax withholding obligations for both profit and not-for profit organizations that are not widely followed, yet involve severe penalties with noncompliance. Any organization paying California-source income to a California non-resident that exceeds $1,500 in a calendar year must withhold and send to California 7% of the payments. Reporting and transmittal of nonresident withholdings occurs using FTB Form 592. A payee not wishing such withholding must register with the FTB and complete Form 590. Failure to comply with this withholding can cause the payor organization to be responsible for the withholding that did not occur.