IRS could pull plug on countless area nonprofits
Thousands of Wisconsin nonprofits faced a frightening prospect on Tuesday. Would they lose their tax-exempt status? A tough new federal law revokes tax exemptions for organizations that don’t file tax returns for three consecutive years. For many groups, the deadline was Monday.
(illustration by adrian palomo)
About 19 percent of public charities in Wisconsin – 501(c)3 organizations – and about 28 percent of other nonprofits – labor leagues, fraternal clubs and many other kinds of groups – could be in danger of losing their tax-exempt status, according to data compiled by the National Center for Charitable Statistics. The data, it says, is compiled from a mixture of sources.
IRS Commissioner Doug Shulman issued a statement Tuesday seeking to allay the fears of nonprofit leaders. “It appears that many small tax-exempt organizations have not filed the required information return in time,” he says but urges nonprofits to file even though the deadline has passed.
Nonprofits are required to file Form 990 tax returns – or a shortened electronic postcard if they take in less than $25,000 in a year – on the 15th day of the fifth month after the end of their fiscal year. For most groups, that fiscal year ended on Dec. 31, 2009, placing their tax deadline on Monday because the 15th fell on Saturday.
Deadlines for larger organizations filing full 990 forms can be extended up to six months. But deadlines for filing the shortened online forms required of smaller nonprofits – “e-Postcards” – have to be filed within three years and can’t be extended, according to Andy Holman, a CPA and partner at RitzHolman CPAs, a Milwaukee accounting firm that works with many nonprofits. Prior to the new law, part of 2006’s Pension Protection Act, the IRS didn’t require smaller groups to file any kind of yearly return.
The new law, passed in 2006, requires the agency to automatically revoke a group’s tax-exempt status if it misses three filings in a row. Because the new law took effect in 2007, 2010 is the first year revocations are possible. A May IRS news release warned that “under the law, the IRS does not have discretion in this matter.”
Nonprofits can reapply for tax-exempt status, but the process is time-consuming, according to John Jansen, executive director of Milwaukee’s Community Shares, a Milwaukee group that raises money for nonprofits. “There’s no guarantee you’ll get the status back, and it’s a lot of paperwork and a lot of time,” he says.
Holman says it costs a nonprofit $600 to $900 to have the IRS consider its application for tax-exempt status, not including the cost of having the application professionally prepared. “It’s a pricey prospect if organizations have to re-file for exempt status,” he says.
It’s not clear yet if the IRS will or can extend the deadline. “At this point, we’re administering the law as it’s written,” says IRS spokeswoman Carrie Resch.
Holman says he’s hopeful, given Tuesday’s statement by the IRS saying it will compromise with small nonprofits that have missed the deadline. But the direction of the agency isn’t clear yet. “Time will tell for organizations who did not meet the deadline,” he says.
Statewide, 3,996 public charities and 3,429 nonprofits of other kinds are in danger of losing tax-exempt status, the NCCS data says. In Milwaukee, 533 public charities are listed as being in “danger of revocation” along with 278 nonprofits of other kinds.
Holman recommends any organization that missed the e-Postcard deadline to file immediately online.