As we reported earlier this year, following the passage of the Pension Protection Act of 2006 (PPA), all tax-exempt organizations (with the exception of churches and related groups) are required to file annual information returns. The PPA provides that any organization failing to file for three consecutive years will automatically lose its exemption. If an organization loses its exemption, it will be required to file a new Application for Exemption to regain its tax-exempt status. Despite efforts by the Internal Revenue Service (IRS) to reach out to small organizations, many failed to file by the first three-year deadline, May 17, 2010.

Over the summer, the IRS announced a two-part relief program for small nonprofit organizations (Form 990-N (e-Postcard) and Form 990-EZ filers only) that are at risk of losing their tax-exemption because of failure to file. First, the IRS has extended the filing deadline until October 15, 2010, for organizations with gross receipts of $25,000 or less (required to file the Form 990-N). These organizations can file electronically by responding to eight questions about the organization through the IRS website. Organizations that electronically file before October 15 will be considered compliant and will not lose their tax exemption.

Second, the IRS instituted a voluntary compliance program (VCP) for organizations eligible to file Form 990-EZ in all three years. Organizations participating in the VCP are required to:

  • File complete and accurate paper Forms 990-EZ and/or Forms 990 for their current and two prior tax periods by October 15, 2010;
  • Submit a signed checklist agreeing to the terms of the VCP; and
  • Submit a check for the correct compliance fee. (Compliance fees range from $100 to $500 depending on the amount of the organization’s gross receipts.)  

Importantly, these opportunities for relief are not open to larger organizations that have to file Form 990 or private foundations that are required to file Form 990-PF. The IRS has posted information regarding the relief program, including the names and addresses of organizations at risk of losing their exemption, on its website – www.irs.gov.