The Internal Revenue Service has been revoking the tax-exempt status of thousands of small charitable organizations for failing to file form 990-N. The latter is filed online at the IRS website. However, if you didn't know you were supposed to file it, you're just out of luck. After three years of non-filing, the IRS automatically revokes your tax-exempt status. You can't simply file the delinquent forms to comply with IRS rules; once revoked, you can only regain your tax exempt status through an onerous application for exemption with the IRS.
The organizations most likely to come under these rules are not the actual charitable organizations themselves, but local chapters of the charitable organizations. Local chapters may believe they are merely a department of the main organization and thus covered by the main organization's tax filings. However, the IRS doesn't see it that way. Local chapters, no matter how small, are viewed as separate charitable organizations with their own filing requirements.
The IRS did not send out instructions to small charitable organizations on how and when to file Form 990-N, nor did they warn these organizations that their tax-exempt status would be revoked for failure to file. The 990-N has only eight questions and requires no financial information, except for an affirmation that the organization has less than $50,000 in revenues (including dues and donations).
The IRS did, however, send out notices of revocation of tax-exempt status. Had they sent out notices of warning beforehand, such revocations would not have been necessary. The IRS actions, in my opinion, smack of bad faith and appear to be a ploy to raise revenues.
Local chapters who lose tax-exempt status can only get it back by filing Form 1023 or 1024, onerous forms of 25 pages each of questions and information, some of which will not be readily available. Filing these forms requires a fee of $100, payable to the IRS. If you have a CPA or lawyer complete the forms for you, you can easily pay $1,000 or more for their help.
The consequences of losing your tax-exempt status is that your organization may have to file federal and state corporate tax returns. Donations to the organization may now be taxable income, and not deductible by the donor. Further, such organizations may now have to begin paying bank fees for their checking and savings accounts, as many banks only waive fees for exempt organizations.
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