Small Tax Exempt Charities at Risk of Losing Tax Exempt Status

Small charities must file annual information tax returns.  For charities with annual gross receipts of $25,000 or less (increasing to $50,000 in 2010), only a so-called electronic postcard, Form 990-N is required.  For charities with annual gross receipts of more than $25,000 but less than $500,000 and whose total assets are less than $1,250,000 (dropping to $200,000 of gross receipts and $500,000 of total assets in 2010); the short-form 990-EZ is required.  The tax returns are due on the 15th day of the fifth month following the charity's year end.  Small charities that haven't filed tax returns for 2007, 2008, and 2009 will lose their tax exemption on October 15, 2010 unless they file the past three years under the IRS special one-time relief program.  The IRS estimates some 300,000 charities could be affected.  The IRS has published a list by state of the charities that will lose their exemption at: http://www.irs.gov/charities/article/0,,id=225889,00.html  Check the list for your charity!

For those charities eligible to use Form 990-N, an automatic extension is granted until October 15, 2010 to file the past-due tax returns.  For those charities eligible to file From 990-EZ, their past-due returns must also be filed by October 15, 2010 but they must also pay a small compliance fee of from $100 to $500, depending on the amount of their gross receipts. See http://www.irs.gov/charities/article/0,,id=225705,00.html for more information.  

The IRS filing relief program does not apply to larger charities that must file the full form 990, nor does it apply to private foundations.  Private foundations must file the full form 990-PF.  Private foundations cannot file an e-postcard, and there isn't a short form.  Surprisingly, unfunded private foundations, those with no prior contributions or assets still must file Form 990-PF to avoid losing their exemption.  This could be a sleeper issue for some individuals who may have already formed a private foundation in connection with their estate planning documents but haven't funded it yet.  There is no exemption from filing Form 990-PF based upon the size or the funding of the foundation.