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Preserving your Tax-Exempt Status
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Preserving your Tax-Exempt Status

Most tax-exempt organizations, other than churches, must file a yearly return or notice with the IRS. If an organization does not file a required annual return for three consecutive years, the law provides that it automatically loses its tax-exempt status. Loss of exempt status means an organization must file income tax returns and pay income tax, and its contributors will not be able to deduct their donations.

What must be filed this year depends on the organization’s financial activity:

Financial activity Filing requirement
Gross receipts normally = $25,000 990-N (e-Postcard)
Gross receipts > $25,000 and < $1 million, and
Total assets < $2.5 million
990-EZ or 990
Gross receipts = $500,000, or
Total assets = $1.25 million
Private foundation (regardless of financial activity) 990-PF

In 2010 the tax-exempt status of any non-profit that has not filed the required form in the last three years will be revoked.

The Pension Protection Act of 2006 requires that non-profit organizations that do not file a required information form for three consecutive years automatically lose their Federal tax-exempt status. This requirement has been in effect since the beginning of 2007.

If an organization loses its exemption, it will have to reapply with the IRS to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.

Small non-profit organizations with annual receipts of $25,000 or less can file an electronic notice, Form 990-N ( e-Postcard). They will need only a few basic pieces of information to file: the organization’s employer identification number, its tax year, legal name and mailing address, any other names used, an Internet address if one exists, the name and address of a principal officer and a statement confirming the organization’s annual gross receipts are normally $25,000 or less.

Tax-exempt organizations with annual receipts above $25,000 are required to file the Form 990 or the Form 990-EZ annually. Private foundations file Form 990-PF. Churches and integrated auxiliaries of churches are not required to file Form 990-series returns or notices.

Form 990-series returns and e-Postcards, are due by the 15th day of the 5th month after an organization’s tax year ends.

Organizations, practitioners and others should feel free to use the useful fact sheet and drop-in media in newsletters or on their Web sites to communicate the importance of filing timely returns to avoid the automatic revocation of tax-exempt status.

Additional information

DISCLAIMER: This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here.