IRS has reminded taxpayers that October 15 is a key deadline for (1) thousands of small nonprofit organizations at risk of losing their tax-exempt status because they haven't filed the required forms in the last three years, and (2) millions of individuals who have requested a 6-month extension to file their 2009 tax returns.
Background on tax-exempts' filing requirements. Under Code Sec. 6033(a), most tax-exempt organizations, other than churches, must file with IRS an annual Form 990, Form 990-EZ (Short Form Return or Organization Exempt From Income Tax), or Form 990-PF (Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation), or submit a Form 990-N (Electronic Notification (e-Postcard)). For the 2009 tax year (returns filed in 2010), exempt organizations with gross receipts over $500,000 or total assets over $1.25 million are required to file Form 990 (rather than Form 990-EZ). Under the discretionary exemption in Code Sec. 6033(a)(3)(B), IRS provides that exempt organizations whose annual gross receipts aren't normally in excess of a specified amount file the simplified Form 990-N. Starting with the 2010 tax year, IRS will increase from $25,000 to $50,000 the filing threshold for organizations required to file Form 990-N.
Form 990-series information returns are due on the 15th day of the fifth month after an organization's fiscal year ends. For organizations using the calendar year as their fiscal year, May 15 is the deadline. Since May 15 fell on a Saturday this year, the deadline for 2009 calendar year organizations was May 17, 2010.
Non-church exempt organizations that fail to file for three consecutive years automatically lose their tax-exempt status. (Code Sec. 6033(j)(1)) May 17, 2010 was the first filing deadline to trigger non-filer revocation actions. Thus, absent a relief measure, any exempt organization that fails to file for 2007, 2008 and 2009 automatically loses its federal tax-exempt status.
In an effort to help them keep their status, IRS has offered a one-time, two-part filing relief program in July of 2010 to bring small organizations back into compliance.
Part 1—automatic extension. First, IRS is extending the filing deadline to October 15, 2010, for the smallest organizations. Those with gross receipts of $25,000 or less have to file the simple Form 990-N, the e-postcard, which only requests eight information items. If an organization goes to IRS's website, IRS.gov, supplies those eight items, and files electronically by October 15, it will be back in compliance and its tax-exempt status will be intact.
Part 2—voluntary compliance program. The second part is a voluntary compliance program (VCP) for somewhat larger organizations, those that are eligible to file the Form 990-EZ. To take advantage of this program, these organizations must file their three delinquent returns and pay a small compliance fee. As long as they file by October 15, they will not lose their tax exemption. If the organization's gross receipts (as reported on the 2009 information return) are $100,000 or less, the compliance fee is $100; if they are $100,000 to $200,000, the fee is $200; and if they are $200,001 to $499,999, the fee is $500. The payment of the compliance fee doesn't affect the organization's liability for any taxes that would be imposed even if they had filed their returns, including but not limited to unrelated business income tax and employment taxes.
IRS cautions that the one-time relief program is not available to larger organizations required to file Form 990 or to private foundations required to file Form 990-PF.
IRS has posted a list of names and last-known addresses of possible at-risk organizations, sorted by state, at www.irs.gov/thelist. These organizations have return due dates from May 17 through Oct. 15, 2010, but IRS has no record that the organizations filed a required annual return or notice for 2007, 2008 or 2009.
IRS warns charities to act. In IR 2010-101, IRS warns that the October 15 deadline is particularly important this year because it's the last chance for many small charities to comply with the law under the one-time relief program that IRS announced in July. Small nonprofit organizations at risk of losing their tax-exempt status because they failed to file the required returns for 2007, 2008 and 2009 can preserve their status by filing returns by October 15 under the one-time relief program.
Under the filing extension for the smallest organizations required to file Form 990-N, the small organizations simply need to go to the IRS website, supply the eight information items called for on the form, and electronically file it by October 15. IRS says that will bring them back into compliance. Under the VCP for small organizations eligible to file Form 990-EZ, the tax-exempt organization must file their delinquent annual information returns by October 15 and pay a compliance fee.
Background on individuals' 6-month extension. Individuals can request an automatic six-month extension to file their tax return by filing Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, by the original due date of the return. (Reg. § 1.6081-4) The form must show the full amount properly estimated as tax for the year but it needn't be accompanied by payment of the balance of the tax estimated to be due. (Reg. § 1.6081-4(b)) Failure to include the balance due won't affect the filing extension, but interest on the balance will still be charged, and a penalty for failure to pay may be imposed. Extensions can't exceed 6 months unless the taxpayer is abroad. (Code Sec. 6081(a))
IRS urges individuals to meet the deadline. IRS warns the estimated 10 million taxpayers who used Form 4868 to request a six-month extension not to miss their Form 1040 deadline and to file their returns. IRS encourages taxpayers to e-file, noting that E-file with direct deposit results in a faster refund than by using a paper return. October 15 is the last day to take advantage of e-file and the Free File program (which provides free federal income tax preparation and electronic filing for eligible taxpayers through a partnership between IRS and a group of private sector tax software companies).
IRS also advises that the October 15 deadline doesn't apply to some individuals, including those serving in Iraq, Afghanistan or other combat zone localities and people affected by recent natural disasters.
References: For tax-exempt organization's annual return Form 990, see FTC 2d/FIN ¶S-2801; United States Tax Reporter ¶60,334; TaxDesk ¶688,001; TG ¶60703. For an automatic six-month extension for filing individual income tax returns, see FTC 2d/FIN ¶S-5011; United States Tax Reporter ¶60,814.03; TaxDesk ¶570,301; TG ¶1942.