Does new IRS 990N apply?
April 21, 2009 · Print This Article
Hi Carol,
Thanks so much for all your help in getting our Christian Homeschool Network up and running. Things are going well so far. My husband brought a card he saw at the post office and handed it to me thinking it might apply to our group. The same basic info is on this web site: http://www.irs.gov/charities/article/0,,id=169250,00.htmlIt is about a new filing requirement for small tax exempt organizations.Does this apply to us? I was unsure if this was just for 501 C 3 organizations.
Thanks, Carol
Sharon W
Sharon,
The new IRS ePostcard (Form 990N) notification is for 501(c)(3) organizations. The IRS is trying to clean up its database by using this short electronic postcard. They hope to find any “dead” nonprofits that are no longer in operation. They are also looking for small nonprofits that have “grown up” to the $25,000 (now $50,000) gross revenues per year and should be filing a 990EZ or 990 Form annually. The ePostcard is a way for small nonprofits to acknowledge that they are still under the $25,000 (nor $50,000) annual revenue threshold for filing the 990.
I recommend that you consider 501(c)(3) status ASAP. The IRS expects nonprofits to file for 501(c)(3) tax exempt status with in 27 months of formation (incorporation as a nonprofit). Your nonprofit incorporation date was May 27, 2008, so you have until August 2010 to apply. Otherwise, the IRS requests an explanation of why tax exempt status was not filed earlier and tax exemption is granted to the date of filing, not back to the date of formation. This could mean that a nonprofit might owe back income tax for the period that they were not tax exempt.
If your gross revenues stay under $5,000 a year, you are granted an exception from filing the paperwork for 501c3 status. If gross revenues get to be over $5,000 a year, your group should file for 501(c)(3) tax exempt status or pay corporate income tax on any surplus (i.e. profit).
In a nutshell, a small nonprofit has three choices:
1. Stay under $5,000 gross revenues per year
2. File for 501(c)(3) tax exempt status
3. Pay corporate income tax on any annual surplus.
I hope that helps,
Carol Topp, CPA
Update as of August 2010:
The IRS is now asking all nonprofit organizations to begin filing the Form 990N , even if they have not yet applied for tax exempt status. Here is what the IRS states on their website http://www.irs.gov/charities/article/0,,id=156389,00.html
Tax Law Compliance Before Exempt Status Is Recognized
An organization that claims tax-exempt status under section 501(a), but has not yet received an IRS letter recognizing exempt status, is generally required to file an annual exempt organization return.
The annual return is either Form 990, 990EZ or the new electronic postcard Form 990N.
The difficulty in filing the Form 990N if you have not yet received 501(c)(3) tax exempt status is that your organization is not in the IRS system. You’ll have to call the IRS and get entered into their system before you can file your 990N online.
Any wonder why many small nonprofits are not filing the 990 prior to being officially tax exempt?
Carol Topp, CPA
A small group of like-minded individuals has formed a social club for the purpose of helping kids buy school supplies. The club’s income comes from members’ dues and a yearly picnic and dance. The club was incorporated on 11/05/2009 as a nonprofit.
However, the members are resitant to the idea of filing for 501c3
status, because the cost of filing would significantly reduce the amount left to serve the kids. Our annual revenue is in the 5000 -7000 dollar range. As the registered agent, I am contemplating filing for small business status to avoid the tedium of filing the club’s return on Form 1120. Any suggestions?
As a social club, you may be eligible for 501(c)(7) status, not 501(c)(3) status. But the filing fees are the same ($450 or $800 depending on your gross revenues).
The IRS does allow 501(c)(7) social clubs to “self proclaim” tax exempt status without filing the Form 1023 (and thereby not paying the IRS fee!)
The choice between 501(c)(7) and (c)(3) status can be confusing. It might be beneficial to arrange a private phone call with me to discuss your options.
Carol Topp, CPA
I just called the IRS, and they will make available the 990N for us to file in 8 weeks. We had neglected to file it when we were first formed in 2009. My question is, as we also neglected to file the 1023 form, should we wait to file the 1023 until we file the 990N in 8 weeks, and get a confirmation on our non-profit status?
We are a 501(C)3 corporation.
Thank you.
Maggie,
Thank you for contacting me at HomeschoolCPA.com
The Form 1023 is quite long and complicated. I doubt you will get it finished in the 8 weeks you have before you file the Form 990N.
The IRS will accept the Form 990N from organizations before they file their Form 1023. (They didn’t used to do that.)
I recommend that you start the Form 1023 as soon as possible.
File your Form 990N on time
File the Form 1023 when you complete it.
I assist homeschool organizations in preparing their Form 1023. I can also review a Form 1023 that you prepare. See my services page here: http://homeschoolcpa.com/services/501c3-tax-exempt-status/
I hope that helps!