Looming Deadline: How to Make Sure Your Nonprofit Doesn’t Lose Tax-Exempt Status

TaxYou may not know it, but in the next two months your nonprofit could lose your tax-exempt status.

In 2006, Congress changed the rules for nonprofits and tax returns.  Previously, organizations with gross income of under $25,000 didn’t have to file a return. Starting in 2007, any nonprofit (including these tiny ones) that does not file for 3 consecutive years will lose their tax-exempt status.

Despite an allegedly extensive outreach effort by the IRS, there doesn’t seem to be a single press release or news article on this topic before 2010.  Now many organizations are hitting that 3-year wall without even realizing it.  At VolunteerMatch, we want to make sure you have the info you need so you don’t lose your status.

Why is this important?

According to a recent study we did, nearly 1 in 5 nonprofits on VolunteerMatch have budgets of less than $50,000. Volunteers are a critical resource, especially for the smallest organizations that can’t pay full-time staff for much of their day-to-day operations.  And as volunteers (and donors) become more savvy and directly engaged in the giving process, a nonprofit’s tax status is important to them.  Many won’t give or volunteer unless an organization is a 501(c)3.

How do I know if my nonprofit is at risk of losing our status?

The IRS has a list on their website of organizations that are at risk.  If you’re still not sure, contact the IRS directly – better safe than sorry!

What is the timeline for this process?

The original filing deadline was May 17, 2010.  However, because the IRS recognizes that many small nonprofits had no idea this was going on, they have announced a special relief for small organizations, who now have until October 15, 2010 to file.

If your organization is bigger, and you haven’t filed, you should still file!  Until October 15, the IRS will accept your return with a small fee, and will not revoke your status.

What do I do if I’m at risk?

Figure out which form you must file with the IRS, based on the size of your nonprofit.  If you’re a small organization, you don’t have to file a full form 990 – just a simple thing called the e-Postcard (form 990N), which you file online.  Whether you have to file a full form 990 or just the e-Postcard, get it in as soon as possible!

Where can I get more information about nonprofits and this IRS law?

GuideStar has some useful articles chronicling this issue.  Additionally, the IRS has FAQ pages and contact information to help you navigate the process.

(Photo: Alan Cleaver)