In 2006, Congress amended Section 6033 to revoke the tax-exempt status of organizations required to file an annual Form 990, Form 990-PF, or Form 990-EZ, that fail to file for three consecutive years. The amended law also requires many organizations with less than $25,000 ($50,000 for tax years starting after January 1, 2010) in annual receipts to file annual informational reports (Form 990-N) —organizations that had never been required to file before.

 The IRS recently began to formally revoke exempt status for those organizations that failed to comply.  The IRS also issued guidance for organizations that have had their tax-exempt status revoked under the amended law in Notices 2011-43 and 2011-44.  An organization whose exemption has been revoked should apply for reinstatement the same way it would apply for an exemption (by filing Form 1023 or Form 1024), even if it did not have to apply for its original exemption. The filing date will generally be the effective date of the reinstatement; retroactive reinstatement may be possible if the organization can show “reasonable cause” for its failure to file.

 An organization that was not required to file before 2007 and that took in less than $25,000 a year in 2007, 2008, and 2009 can gain retroactive reinstatement simply by filing for reinstatement before December 31, 2012, and attesting to those facts in its application.

On September 12, the IRS released its Exempt Organization Newsletter, Issue Number 2011-15.  Topics include the following:

1. New Round of Outreach to Small Employers and Practitioners about the Small Business Health Care Tax Credit
2. Disaster Relief Resources for Charities and Contributors
3. Webinar: International Activities of Domestic Charitable Organizations
4. Final Regulations Implementing Redesigned Form 990
5. 2011-2012 Priority Guidance Plan
6. Monthly Update to List of Automatically Revoked Organizations
7. Tips for Contributors

Click here to review IRS Newsletter Issue 2011-15.

One commonly held misconception regarding charities is that an organization can qualify under section 501(c)(3) on the grounds that it provides needed services to other 501(c)(3) organizations. In a seminal case in Rev. Rul. 72-369, an organization sought 501(c)(3) status on the grounds that it provided consulting services to 501(c)(3)s for a fee set at cost. The IRS ruled that paid consulting services is a commercial activity carried on for profit and the fact that the fee was set at cost was not sufficient to remove the commercial aspects. In GCM 37257, the general counsel declared that such service-providing organizations will only qualify themselves under section 501(c)(3) if the services they provide to the other 501(c)(3)s are “substantially below cost.”

 Recently, in PLR 201131025, the IRS examined an organization the provided classroom supplies to school teachers. The organization operated (more…)

There are consequences to improperly representing that a donation is deductible. Generally, Section 6113 requires non-501(c)(3)s that are seeking donations to conspicuously disclose “that contributions or gifts to such organization are not deductible as charitable contributions for Federal income tax purposes.’” A $1,000 fine is imposed up to $10,000 for the year for failure to include such language. For intentional failure, the daily fine is the greater of $1,000 or 50 percent of the aggregate cost of the offending solicitations–with no maximum for the year. To be clear, this is not advice for pending 501(c)(3)s–that’s another blog topic–but for others. For example, if my (c)(7) social club asked for donations for my kids’ psychological rehabilitation, (more…)