Confused over IRS dollar thesholds for tax exempt filing status

GirlThrowsMoney

Carol,

Two local CPAs we’ve talked with are confused about the $5,000 threshold that you speak of.
They talk of a $25,000 threshold. They both seem to think we don’t need to do anything if we are under $25,000. Can you explain?

Melissa M

 

Melissa,

The $5,000 threshold is the threshold for filing a Form 1023 application. IOW, if your gross income is under $5,000 you do not have to file the application; your group is automatically tax exempt.

It is found in the instructions to Form 1023 on page 1 under “Form 1023 not necessary.”
http://www.irs.gov/pub/irs-pdf/i1023.pdf

 

The $25,000 that the CPAs mentioned is an  old figure. It was raised to raised to $50,000 in 2010.

It is the threshold for organizations to file an annual Form 990EZ instead of the simpler 990N (electronic postcard). See http://www.irs.gov/Charities-&-Non-Profits/Annual-Electronic-Filing-Requirement-for-Small-Exempt-Organizations–Form-990-N-%28e-Postcard%29

 

I am quickly learning that even if you are under the $5,000/year threshold the IRS expects all nonprofits to be filing the 990N every year. I’ve had several nonprofit clients that failed to do this and it is holding up their tax exempt status approval.

Unfortunately,  there is no longer any truth to: “If you’re under $XXX, you don’t have to file anything.”
The rules changed back in 2010 and the IRS is enforcing them!

I hope that helps!

Carol Topp, CPA

 

 

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