[Legislative Update] October 15 Deadline for Small Charities to Retain Tax-Exemption
In the past, 501(c)(3) public charities with annual income below $25,000 were exempt from filing the 990 tax return that is required of larger charities each year. Starting in 2007, due to tax law changes in the Pension Protection Act, public charities with income under $25,000 must annually file a 990-N or have their tax-exemption revoked after 3 years of non-filing. (Only churches are exempt from these filing requirements.) Although the IRS has made several attempts to warn these organizations of their need to file over the 3-year period, an estimated 350,000 public charities failed to file a single 990-N by the original May 17, 2010 deadline.
In response, the IRS is providing one-time relief that will allow small exempt organizations to come back into compliance and retain their tax-exempt status by filing returns by Oct. 15, 2010. After this date, organizations that have not filed for three consecutive years will automatically lose their exemption and will have to reapply to regain their tax-exempt status. Small organizations that have an annual income over $25,000 and are eligible to file the 990-EZ can also come back into compliance under this program.
What can grantmaking foundations do?
- Consider notifying all grantees or those grantees at risk of automatic revocation of the one-time relief. The IRS website has a list of organizations at risk of losing their tax-exempt status due to lack of filing for three years. The list contains the name of the organization and its last-known address.
- Be sure all grantees have complied with IRS filing rules before making a grant. After October 15, 2010, organizations which have not filed will lose their tax-exempt status. As a result, private foundations will need to exercise expenditure responsibility on any future grants to the organization until they regain tax-exempt status.
ASF members: Log in to read about expenditure responsibility.