THE IRS MAY BE LOOKING FOR YOU: SMALL NOT-FOR-PROFITS NOW REQUIRED TO FILE ANNUALLY WITH IRS

By Patricia A. O'Malley, CPA

The work of the not-for-profit sector is often done by very small, grass roots organizations.  These organizations often rely primarily on volunteer efforts and collect little in the way of contributions to fund activities.  Often the accounting for these organizations passes annually to a new treasurer.  As a result, the address of the organization changes as well, and over time it becomes impossible for the Internal Revenue Service (IRS) to locate and contact the group. 

The smallest not-for-profit organizations are those with gross receipts normally less than $25,000 per year.  These organizations have been exempt from annual filing requirements in the past.  This changed in August 2006 with the enactment of the Pension Protection Act of 2006.

The new requirements are effective for annual periods beginning after 2006.  Small organizations are now required to file an annual notice electronically with the IRS. While there are no monetary penalties, if a small organization does not file for three consecutive years, it will lose its exempt status.

The information to be filed each year is modest.  The following data will be requested:

• The organization's legal name
• Any name under which the organization operates or does business
• The mailing address of the organization
• The website address of the organization, if applicable
• Taxpayer identification number
• Name of a principal officer
• Address of the principal officer
• Evidence of the organization's basis for its exemption from information return filing requirements

The annual notices are subject to the same public disclosure requirements and inspection rules that are generally applicable to exempt organizations.

What happens if the organization loses its exempt status?  In order to be reinstated, the organization will need to apply for exemption again.  If the organization can show reasonable cause for having previously failed to file the required annual notices during the application process, the IRS may, in its discretion, reinstate the organization's exempt status retroactively to the date of the revocation.

The IRS is required to notify every organization subject to the annual notice of the new requirements in a timely fashion.  The effort will be made by mail in the case of organizations included in the list of exempt organizations maintained by the IRS.  In other cases, an effort to contact the organization may be made through the internet or other such outreach methods as may be available. 

The IRS is also required to publicize, in the appropriate manner, the penalty to be imposed for failure to file the notice. 

Unfortunately, many of the organizations effected by the new requirements are those that are the least likely to know of the new filing requirements and the consequences.  Leaders of small not-for-profit organizations, board members, or not-for-profit volunteers should visit the IRS website at www.irs.gov for more information and to ensure that their organization complies with the new requirements.