IRS unveils new outreach to small and mid-size tax-exempt entities

The IRS has announced a voluntary compliance program (VCP) for mid-size exempt organizations to file delinquent Forms 990-EZ, Short Form Return of Organization Exempt from Income Tax, and preserve their exempt status. At the same time, very small exempt organizations may take advantage of an extended filing deadline, October 15, 2010, for Form 990-N, Electronic Notice (ePostcard) to avoid automatic revocation of exempt status.

Relief

Shortly after May 17, 2010, the IRS announced that many small exempt organizations had missed the filing deadline. The IRS indicated that it would provide relief to avoid the automatic loss of exempt status. None of this relief is open to larger organizations that have to file Form 990, Return of Organization Exempt from Income Tax, or Form 990-PF, Return of Private Foundation.

Background

Exempt organizations are required to file annual information returns with the IRS. Very small exempt organizations, entities with annual receipts of $25,000 or less, can file Form 990-N. Mid-size exempt organizations, entities with annual with gross receipts of less than $500,000 and total assets of less than $1.25 million may file Form 990-EZ or Form 990. Large exempt organizations must file Form 990 and private foundations must file Form 990-PF, Return of Private Foundation

Information returns are due on the 15th day of the fifth month after an organization's fiscal year ends. For organizations using the calendar year as their tax year, the filing deadline was May 17, 2010. Under the Pension Protection Act of 2006, exempt organizations that fail to file the required information return for three consecutive seasons automatically lose their exempt status.

Voluntary Compliance Program (VCP)

The VCP is open to mid-size exempt organizations that missed the May 17, 2010 filing deadline. To participate in the VCP, an exempt organization must:

• File complete (all required schedules and attachments) paper Forms 990-EZ or, at its option, Forms 990 for its 2007, 2008 and 2009 tax years by the extended due date of October 15, 2010;
• Submit a signed checklist agreeing to the terms of the VCP; and
• Pay a compliance fee.

The IRS is extending the Form 990-N filing deadline to October 15, 2010. Qualified exempt organizations must file Form 990-N electronically. There is no compliance fee for Form 990-N filers.

If a very small exempt organization is a subordinate of a parent organization and the organization is included on the parent's group return, the organization is not required to file Form 990-N, IRS officials explained. Small organizations should confirm that a parent has filed a group return. If not, the small organization should contact the IRS for assistance, IRS officials note.

Regaining exempt status

If an organization's exempt status is automatically revoked and it does not qualify for special relief, the organization must seek reinstatement. An organization may request to have its date of reinstatement effective retroactive to the date of revocation. The request will be granted only if the IRS determines that the organization had reasonable cause for not filing for three consecutive years and approves the organization's exemption application.

IR-2010-87