A Last Chance for Charity: 300,000 Non-Profits Risk Losing Tax-Exempt Status

Charities and other tax-exempt, non-profit businesses, though distinct from the human-owned for-profit companies I represent, do play a vital role in the humanity of our society. Since stewardship of our Colorado community is one of my concerns, I wanted to add my voice to the warnings to small non-profits that have been granted a tax-exempt status by the Internal Revenue Service:

                               Check this list, NOW!

Traditionally, very small tax-exempt entities were also exempt from annual IRS filings. That changed a few years ago, although many organizations apparently didn’t get the word. The IRS has identified (or potentially misidentified) some 300,000 non-profits, 5,500 of them in Colorado, that have blown their filing requirements.

If you are associated with a tax-exempt non-profit, especially a smaller organization that hasn’t had the advantage of a professional staff or advisors, you should see if the IRS has included your organization on its list of offenders—just click here. If you find your group made the list, you have until October 15, 2010 to take corrective action. From the IRS:

Two types of relief are available for small exempt organizations — a filing extension for the smallest organizations required to file Form 990-N, Electronic Notice (e-Postcard) , and a voluntary compliance program (VCP) for small organizations eligible to file Form 990-EZ, Short Form Return of Organization Exempt From Income Tax.

Small organizations required to file Form 990-N simply need to go to the IRS website, supply the eight information items called for on the form, and electronically file it by Oct. 15. That will bring them back into compliance.

Under the VCP, tax-exempt organizations eligible to file Form 990-EZ must file their delinquent annual information returns by Oct. 15 and pay a compliance fee. Details about the VCP are on the IRS website, along with frequently asked questions.

After the October 15 deadline, the IRS will revoke the tax-exempt status of an organization remaining on the list. Since it’s that tax-exempt status, not the non-profit status, that allows contributions to be tax deductible, donors to those groups will lose the ability to claim those deductions when the IRS subsequently publishes its final listing of revoked exemptions.

For more information, I recommend this detailed article from Peter Nagel through the Colorado Bar Association, and, in a sign of the times, the IRS has a YouTube video on the subject.