How come we never had to file anything with the IRS before?

Dear homeschool leader,

Did you just hear the shocking news that all nonprofit organizations have to start filing annual returns with the IRS?

You may be wondering, “What changed? We never had to file anything before!” And you’d be right.

For many years the IRS had a problem: nonprofit organizations were not giving them annual information returns (Form 990EZ or Form 990). The IRS let small organizations (under $25,000 per year was considered small) get by without doing any annual filings, but the IRS couldn’t tell if an organization failed to file an annual return because

  1. The organization had died or
  2. The organization had less than $25,000 in income and wasn’t required to file a return or
  3. The organization was large and just not filing a return with the IRS. IOW, they were not playing nice and the IRS didn’t like that!

The IRS found some nonprofits are not following the rules and (gasp!) complained to Congress.

Congress passes the Pension Protection Act in 2006.

Photo credit: kakisky from morguefile.com

So the IRS got Congress to pass the Pension Protection Act in 2006. It required two things from nonprofits:

1. All small organizations (revenues of less than $25,000 per year) had to start filing an electronic form to the IRS every year. What the IRS called the 990N or their “e-postcard.”

and

2. All tax-exempt organizations that didn’t file an information return for three consecutive years will automatically lose their tax-exempt status. I call it the “3 strikes and you’re out” rule.

 

So here’s the timeline:

2006: Pension Protection Act requires annual electronic notice from all small nonprofits.
2007, 2008, 2009 were the first years that the annual notification requirement was in place.
2010: The first automatic revocations take place. The “3 strikes, you’re out” rule.

Word about the new required annual filing has been slow to get out. After all the IRS doesn’t have a big marketing budget. They sent letters, created press releases and even created a YouTube video, but a lot of small nonprofits were still in the dark.

Slowly, a lot of small organizations learned that their tax exempt status had been revoked and they didn’t even know about it! I guess the IRS got an earful of complaints because they (finally) created a system where small nonprofits could get their tax exempt status reinstated.

IRS created a “streamlined” reinstatement process for nonprofits

The process is outlined in IRS Revenue Procedure 2014-11 that came out in January 2014. Yes, that’s 2014. Eight years after the whole reporting requirement was enacted by Congress. We never claimed the IRS was speedy, did we?

The IRS loves paper and so the Rev Proc 2014-11 requires nonprofits to send the IRS a lot of paper. They have to file the rather long Application for Tax Exemption (Form 1023 or 1024) and probably file their annual information returns (Form 990) way back to 2008.

I’m not quite sure what’s streamlined about this, but I guess to a turtle, a snail is speedy!

So that’s why you are wondering if the IRS has some sort of new reporting requirement. It’s not really new, it’s 8 years old, but maybe you’re just now hearing about it.

What to do now

  • Brush up on the Form 990N and start filing it now!
  • Search the IRS list of revoked organizations to see if your nonprofit is listed there.
  • Read Rev Proc 2014-11 if you like reading IRS jargon to see what paperwork you need to file with the IRS to get your tax exempt status reinstated.
  • Or better yet, arrange a phone call to talk over your situation with me, HomeschoolCPA, Carol Topp. I’m pretty good at understanding homeschool organizations and can help you know where you stand with the IRS and what to do next.

Thanks to Peter B. Nagel over at  http://www.cobar.org/index.cfm/ID/20108/subID/26452/CORP for providing the history of the IRS rules.

Carol Topp, CPA

 

 

 

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