March 5, 2013 in Non-Profit Commentary

INSIGHT: Tax Exempt Organizations & Filing Requirements

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Many organization find that achieving tax exempt status is the most significant obstacle to overcome in getting established. Beyond the effect on tax filing requirements, the classification makes organizations eligible for a range of funding unavailable to non-exempt organizations, including being eligible for tax-deductible donations. While exemption from income tax under section 501(c)(3) is the most widely known, and perhaps the most desirable, there are numerous other provisions that provide similar  benefits.

However, achieving exemption is only the start of the process of maintaining the exemption. Since 2007, all exempt organizations have been required to make an annual filing to the IRS in order to maintain their exemption. The Form 990 filing is available in several variants depending on the size of the organization – from the standard form 990 for larger organizations to the 990-EZ for smaller ones. The range of 990 forms can be found here.  Failing to make these mandatory filings three years in a row results in the automatic revocation of your organization’s tax exempt status.

The new filing requirement was not well-understood and was often entirely overlooked by smaller organizations. In fact, in 2011, the IRS announced that 275,000 organizations had lost their exemption for this reason.  An updated list of organizations no longer exempt for this reason is available here.  In an effort to provide relief to small organizations that lost their exemptions unintentionally, the IRS established a program of Transitional Relief described in this notice as well as this one. The original deadline for qualifying for this program was December 31, 2012. However,  the deadline was extended to February 1, 2013, for organizations directly affected by Hurricane Sandy.

All organizations, including those that did not have their tax exempt status revoked, should keep apprised of their ongoing filing requirements. In particular, several changes to form 990 and 990-EZ were made in 2012.  These changes are summarized here.

Please contact Zak Shusterman if you have any questions about your organization’s current filing requirements or to discuss reinstatement options following expiration of the transitional relief program.