By Gabrielle Lessard, Esq.

About a quarter of the non-profit sector just got another chance.   The IRS is providing one-time relief that will allow small exempt organizations to come back into compliance and retain their tax-exempt status even though they failed to make required annual filings for three consecutive years.   This one-time relief benefits Form 990-N (e-Postcard) and Form 990-EZ filers only.

When a tax-exempt organization that is required to file an annual return (e.g., Form 990) or submit an annual electronic notice to the IRS does not do so for three consecutive years, the organization automatically loses its federal tax exemption.  On April 22, the New York Times reported that as many as 25% of existing tax-exempt organizations were at risk of losing their exempt status because they had failed to make their annual filing.  This situation apparently developed because many managers of small organizations overlooked a change in the law.   In the past, organizations with gross annual revenues under $25,000 were exempt from annual filing requirements. The Pension Protection Act of 2006 imposed a new requirement that they make a brief electronic annual filing on From 990-N, also called the e-postcard.  http://www.irs.gov/charities/article/0,,id=169250,00.html

The IRS website has a list of organizations at risk of losing their tax-exempt status because, according to IRS records, they have not filed for 2007, 2008 and 2009. The list contains the name of the organization and its last-known address. Check this list to see whether your organization is at risk of automatic revocation and can avoid this consequence by following IRS guidance.  If an organization loses its exemption, it will have to reapply to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.

Note: The IRS website warns that the list may be incomplete, and the list may include organizations that were required to file Form 990 or Form 990-PF and are not eligible for the relief program.