Thursday, August 5, 2010

Relief For Small Organizations Facing Revocation

The Pension Protection Act in 2006 enacted laws that require the IRS to revoke the tax exempt status of any organization that is required to file Form 990, but fails to do so for three consecutive years. (This is only effective for organizations that have a Form 990 filing requirement. It does not effect churches.) The first set of revocations was to be effective on May 17, 2010. However, the IRS became concerned that too many organizations did not fully understand the ramifications of not filing, and it created a leniency program.

If an organization has received a determination letter indicating it has a Form 990 filing requirement, then it must file either Form 990, Form 990-EZ or Form 990-N for each year of its existence. The IRS has granted an extension until October 15, 2010 for organizations to file one of these forms for each of the past three years or at least for 2009 for those eligible to file Form 990-N. This action will avoid revocation of the organization's exempt status.

If an organization does not qualify to file Form 990-N, and it should have filed Forms 990/990-EZ for each of the last three years, the IRS has created a voluntary compliance program. The organization must file returns for all three outstanding years and pay a compliance fee. The maximum compliance fee is $500 and the program relieves an organization from the assessment of penalties for late filing of the returns. This represents a savings of thousands of dollars since the late filing penalty is $20 per day for small organizations and $100 per day for larger organizations.

It is advisable that all organizations determine if they are in compliance with their filing requirements. The IRS has published a listing of organizations with planned revocation on its website. The lists are separated by state. If you have question regarding an organization, the lists may be reviewed to determine if the organization is scheduled for revocation.

With all of the extra effort expended by the IRS, it is anticipated the the revocations will be issued later this year. Additionally, if an organization has a return that has not been filed, it should pursue the voluntary compliance program as a remedy. If only one return is late, it should be filed through this program. After the end of this program, the IRS will probably be fairly unforgiving to late filers.

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