Nonprofit Tax Help

David McRee, CPA

"New" Laws & Rules Affecting Nonprofit Filings

New Notice Requirement for 501(c)(4) Orgs

As part of the Protecting Americans From Tax Hikes Act of 2015, Congress added section 506 to the Internal Revenue Code. This created the new notice requirement for 501(c)(4) organizations.

Essentially, the requirement is that all new organizations claiming to be tax-exempt under section 501(c)(4) are required to notify the IRS of their existence and their intent by electronically submitting the newly created Form 8976 within 60 days of formation. That’s not much time.

Read more about the new 501(c)(4) notice requirements here. 

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New 6-Month Extension for Form 990, 990-EZ, 990-PF

The new law granting six month extensions of time to file an exempt organization return found in Section 2006 of H.R. 3236, aka Surface Transportation and Veteran’s Health Care Choice Improvement Act of 2015

The language in the law states, in relevant part:
(b) MODIFICATION OF DUE DATES BY REGULATION.
—In the case of returns for taxable years beginning after December 31, 2015,
the Secretary of the Treasury, or the Secretary’s designee, shall
modify appropriate regulations to provide as follows:

(4) The maximum extension for the returns of organizations
exempt from income tax filing Form 990 (series) shall be an
automatic 6-month period ending on November 15 for calendar
year filers.
(5) The maximum extension for the returns of organizations
exempt from income tax that are required to file Form 4720
returns of excise taxes shall be an automatic 6-month period
beginning on the due date for filing the return (without regard
to any extensions).

Read more about the six-month extension for Form 990 here.

Form 1023-EZ Available

In order to reduce the IRS workload of processing applications for tax-exempt status, the IRS has created a short, streamlined application called Form 1023-EZ which can be filled out online. It has a reduced user fee. There is no paper form. Since it amounts to little more than a self-declaration of qualification for tax-exempt status, some donors may be wary of donating to an organization with an organization that filed only a 1023-EZ. Additionally, the person signing the form does so under penalties of perjury. While the form is "simplified," it still requires an understanding of nonprofit tax law concepts. Signing statements that you do not understand may create legal liability. Many organizations fill out and submit Form 1023-EZ even though they do not fit the criteria for filing the form and should be filing the regular Form 1023. Professional advice should be obtained before moving forward with Form 1023-EZ. Despite the drawbacks to the Form 1023-EZ, many small organizations are using it, and it has helped the IRS clear out the backlog of applications, resulting in shorter processing times for applications.

IRS Revenue Procedure 2014-11

On January 2, 2014, the IRS published Revenue Procedure 2014-11 that provides new procedures for re-gaining tax-exempt status for organizations that had their status revoked because they failed to file Form 990 on time for three consecutive years. Read about Rev. Proc. 2014-11

New Requirement for Small Nonprofits: Filing Form 990-N

Beginning in 2007, many tax-exempt organizations that were not previously required to file Form 990 because their income was normally $25,000 or less, will now have to file Form 990-N. Failure to do so will result in loss of exempt status. Period. The Form 990-N will not be a paper form, it will be an electronic filing and will be very brief. See my detailed information on Form 990-N.

Serious Consequences for Non-filers of Form 990

In the past, the consequence of failing to file Form 990 has been large penalties, which have been fairly easy to have abated as long as there was a good reason for the failure to file, or for filing late. Beginning with tax years after December 31st, 2006, failure to file Form 990, Form 990-EZ, or Form 990-N (whichever is applicable) for 3 consecutive years will result in the automatic revocation of your organization's exempt status. The only way to have it reinstated is to apply to the IRS with Form 1023 or Form 1024. If you can show that there was reasonable cause for not filing, the IRS may, at its descretion, reinstate your organization's tax-exempt status retroactive to the date of revocation. This need to apply after revocation also applies to organizations that were not required to apply previously. See notes on IRS Revenue Procedure 2014-11 above.