Doomsday is coming…May 18, 2010 to be exact. No, it has nothing to do with the Mayan calendar ending (that’s 2012!). May 18 is the day that nearly 1/4 of all US nonprofits find that the IRS has automatically revoked their tax exempt status. If you are doing the math, that is nearly 400,000 nonprofits. At The Foundation Group, we have sounded the alarm numerous times over the past several months. It seems like people don’t start paying attention until it is nearly too late.
Consider this quote from Diane Aviv, president of the Independent Sector, a nonprofit trade group: “It’s going to be an unholy mess once these organizations realize what’s happened to them.”
We implore you to pay attention now before it is too late.
So, why is this happening, what does it mean…and how can you avoid being among the 400,000?
First, the why. In August 2006, Congress passed the Pension Protection Act of 2006. As the name suggests, this particular bill was an overhaul of the US code regarding the operation of large, corporate pension funds. Slipped into the bill in conference committee, however, was 393 pages of legislation that have been progressively affecting 501(c)(3) and other tax exempt entities ever since. While most nonprofits have been relatively unaffected by the PPA until now, that is about to change in the most dramatic of ways.
Historically, only nonprofits with annual gross revenue in excess of $25,000 were required to file Form 990. The PPA changed all that with the introduction of the Form 990-N for small, low revenue organizations. The 2007 tax year was the first year Form 990-N was required. But Form 990-N was just the beginning. The real kicker in the PPA is the rule that will culminate with the automatic revocation of the tax exemption of any nonprofit that fails to file its required Form 990 for three consecutive years. Year three for most organizations is the due date of their 2009 return: Monday, May 17.
What does it mean? The IRS is being uncharacteristically blunt regarding the outcome of the exemption revocations: There is no recourse short of reapplying for 501(c) status. In other words, you will have to start all over. These revocations are automatic and statutory. No one is making a thumbs-up or thumbs-down determination. Either you fall into the category or you don’t. Pretty simple.
What can you do about it? File your Form 990…period! It’s not too late. If your nonprofit normally files Form 990 or Form 990-EZ, your due date can be delayed by 3 months, but only if you get a timely extension filed. There is no extension for Form 990-N…so failure to file will mean the end of your tax exemption.
If you need help, call us. The Foundation Group prepares Form 990 for hundreds of nonprofits each year. But time is quickly running out, so do not delay!