Small charities that fail to file a basic informational tax form by Oct. 15 risk losing their tax-exempt status under federal law, according to an article in the Oct. 3 Chronicle of Philanthropy. The implications of losing the exemption are serious for both charities and donors to the organizations.
Under the law, organizations that never had to regularly file returns in the past—those with revenues of $25,000 or less—must now file a return that requires basic information, such as a mailing address and the name of a principal officer. The return is Form 990-N, also known as the e-Postcard.
The Chronicle reported that so many organizations failed to file the form by the initial May 17 deadline that the IRS extended it to October 15. It said the IRS will announce in early 2011 which organizations failed to file the form on time and have had their exemptions automatically revoked. Lois Lerner, who oversees the IRS office that monitors charitable groups, said in the report: “This isn’t one where you can come in and make an argument with me. By order of the law, it just happens.”
The report said that revoked groups will have to reapply for new exemptions, pay a fee and wait for their paperwork to be processed. In the interim, they will be liable for income taxes on money they receive from donors for the period in which they were not exempt.
For their part, donors will not be able to take charitable-contribution deductions on their tax returns for gifts to these organizations until they regain their exemptions—with the probable effect of causing many donors to withhold gifts, according to the report.