For nonprofits with a December 31 year-end, annual returns are due in mid-May (for 2017, the date is Monday, May 15, to be exact). It’s crucial to know that if you miss this due date three years in a row your tax-exempt status will automatically be revoked.
If your organization ends up missing the due date for filing its return for the third year in a row, the revocation of its tax-exempt status takes effect immediately on the due date of the third-year return, with severe consequences following. Losing your tax-exempt status means donors will no longer be able to deduct contributions to your organization. Additionally, you’ll have to file a federal tax return, such as Form 1120, U.S. Corporation Income Tax Return, and pay any tax due.
To reinstate your tax-exempt status after an automatic revocation, you’ll need to go through the process of filing an application for exemption, in addition to paying a user fee. This is true even if your organization was not originally required to file for exemption. You also have the ability to request retroactive reinstatement by attaching a letter to the application explaining why the required returns weren’t filed. Remember that when you are requesting retroactive reinstatement for your organization you must be able to prove there was reasonable cause for nonfiling. Reasonable cause means you must have exercised ordinary business care and prudence over the entire three-year period but were still unable to file your return.
How can you avoid all this trouble? The good news is that filing is probably much easier than you think. A nonprofit with annual gross receipts of $50,000 or less can file Form 990-N, known as the “e-Postcard.” Form 990-N has eight questions and is filed electronically. Nonprofits with gross receipts of less than $200,000 and assets under $500,000 can use Form 990-EZ, while larger organizations are required to use the standard Form 990. If your nonprofit runs a business to help raise funds, you may also need to file Form 990-T to report and pay tax on income from those sales.
To verify that your nonprofit organization is tax compliant, and to mitigate the risk of your tax-exempt status being revoked, do not hesitate to contact the professionals at Alloy Silverstein today. Our professionals are well versed in non-profit tax and accounting procedures and would love to help your organization thrive.
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