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IRS Program Offers One-Time Relief to Small Organizations at Risk of Losing Exempt Status

Client Advisory

September 22, 2010

A change in the law, aimed at expanding the scope of IRS oversight activities for small tax-exempt organizations, has imposed new tax reporting requirements on tax-exempt organizations with limited revenues. Until December 31, 2006, many tax-exempt organizations with annual gross receipts of less than $25,000 were exempt from any federal tax filing requirements.  However, a provision of the Pension Protection Act of 2006 provided that starting on January 1, 2007, such organizations, with very few exceptions, are required to file IRS Form 990-N (the “e-Postcard”) every year.

If an organization required to file Form 990-N fails to do so within five months of the close of its tax year, the IRS will send a reminder notice, but will not assess any penalties for late filings. However, if an organization subject to the e-Postcard filing rules fails to file for three consecutive years, it will automatically lose its tax-exempt status. Once tax-exempt status is lost, the organization must reapply with the IRS to regain its tax-exempt status.

It appears that many small tax-exempt organizations are not complying with the new requirements, potentially because they are unaware of the change in the law. To attempt to remedy this situation, the IRS has published a list of over 320,000 organizations that are at risk of losing their tax-exempt status if they do not satisfy annual filing requirements for three consecutive years. The IRS list is available at http://www.irs.gov/charities/article/0,,id=225889,00.html. The list is incomplete, so organizations should also check their records to determine whether they are in compliance with IRS filing requirements.

The IRS is also providing one-time relief for some organizations with a tax year ending on or after December 31, 2009 and before May 1, 2010. Organizations which are required to file e-Postcards, but have failed to do so, may file an e-Postcard now by going to http://epostcard.form990.org. If they file by October 15, 2010, the IRS will treat them as in compliance with the new reporting requirements.


Questions regarding this advisory should be addressed to Howard J. Barnet (212-238-8606, barnet@clm.com), Clifford P. Case (212-238-8798, case@clm.com), Dan Pittman (212-238-8854, pittman@clm.com) or Jinsoo J. Ro (212-238-8833, ro@clm.com).

Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © 2017 Carter Ledyard & Milburn LLP.
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