,
Morgen Cheshire ,
Jonathan R. Flora 
,
Marla K. Conley ,
Christine F. Cushman and
Amy Newnam
The IRS has announced a special one-time relief program for small tax-exempt organizations that failed to file annual information returns for three consecutive years and, as a result, could lose their federal tax-exempt status. Under the relief program, certain small tax-exempt organizations that were required to file annual information returns on May 17, 2010 (or a later filing date on or before October 15, 2010), and that are facing automatic revocation for three consecutive years of non-filing, now have until October 15, 2010 to preserve their tax-exempt status.
Revocation of Exempt Status for Non-Filing
Most tax-exempt organizations, other than churches, must file a yearly return or notice with the IRS (Form 990-PF, 990, 990-EZ, or 990-N). Under the Pension Protection Act of 2006, which imposed new filing requirements for small tax-exempt organizations as well as harsher penalties on non-filers, any organization that fails to file the applicable return or notice for three consecutive years will automatically lose its federal tax-exempt status. Loss of exempt status means the organization becomes subject to federal income tax, and it must reapply for exempt status if tax-exemption is desired. Generally, loss of exempt status also means that contributors to the organization will not be able to claim charitable deductions for donations made after the revocation is published by the IRS.
In 2011, the IRS will publish a final list of organizations that have had their tax-exempt status revoked and will send letters to these organizations notifying them of the revocation.
Which Organizations Are Eligible?
Generally, organizations that are at risk of losing their tax-exempt status are posted on an "At Risk" list on the IRS website. The list includes the names and last-known addresses of organizations that failed to file a return by May 17, 2010, and consequently are about to lose their tax-exempt status for three years of consecutive non-filing. The relief program is only available to small tax-exempt organizations, i.e., those organizations required to file either IRS Forms 990-N (available for organizations with gross receipts that are normally $25,000 or less) or 990-EZ (available for organizations with gross receipts between $25,000 and $500,000 and assets under $1.25 million) for the three previous tax years. Larger organizations, those that were required to file IRS Forms 990 for any of the past three years, and private foundations required to file IRS Forms 990-PF for any of the past three years, are not eligible for the relief program.
Some organizations, such as those exempt from federal income tax pursuant to a group ruling for which the parent has not yet filed a return and those with other unique circumstances, may be at risk of losing their exemptions even though they are not specifically included on the "At Risk" list. The IRS recommends that any such tax-exempt organizations check their records and determine whether they are at risk of automatic revocation because they have not satisfied their annual filing requirements.
Donors to these organizations still have some protection; generally, the tax deductibility of donations to organizations on the "At Risk" list is preserved until the IRS publishes the final revocation list. Because revocation is effective as of the due date of the organization's last return, however, such organizations may find themselves liable for federal income taxes based on their activities as of May 17, 2010.
Taking Advantage of the Relief Program
Organizations eligible to file IRS Form 990-N may save their tax-exempt status simply by completing the form online prior to the October 15, 2010 deadline. Organizations eligible to file IRS Form 990-EZ must submit a request to participate in the IRS' Voluntary Compliance Program, which involves submitting tax returns for the last three years, completing a simple compliance checklist, and paying a compliance fee ranging from $100 to $500, prior to the October 15, 2010 deadline. Any larger organization that has failed to file annual information returns for three consecutive years but is ineligible for this relief program should quickly consult an attorney regarding reapplying for tax-exempt status in order to minimize the consequences of automatic revocation of exempt status. Any tax-exempt organization that is on the "At Risk" list or that determines, based on a review of its records, that it is at risk should consult its attorney or tax preparer for more information.
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