Wednesday, August 25, 2010

Exempt Organizations: Due Dates for timely filing returns and related penalties

As readers of previous posts would know, normally I don't spend a lot of time focusing on tax exempt organizations, in this blog. But due to the number of inquiries I have recently received, I thought it would be a good time to revisit a common type of tax filing.

Tax exempt organizations are required to file their annual return by the 15th day of the fifth month after the close of their return year. Or in plain language, if your tax exempt organization has a calendar year and closes its books on December 31, 20XX. A timely return should be postmarked or filed by May 15th of the following year. There are two three month extensions that tax exempt organizations can apply for at their discretion.

Penalties for non-filing can be very steep.

Penalties for organizations with gross receipts under $1,000,000 are $20 per day with a maximum penalty of the lesser of $10,000 or 5% of gross receipts for the year. This penalty also applies if the filing information is incomplete.

Penalties for tax exempt organizations whose gross receipts are over $1,000,000 is $100 per day with a maximum of $50,000. Keep in mind that this penalty also applies for failing to file a complete return.

Tax exempt organizations that are required to file form 990-N are generally not subject to late filing penalties.

In addition to these penalties the IRS can impose penalties on responsible parties for failure to file upon request by the IRS. Failure to timely comply with an IRS request can result in penalties of $10 per day to that person. With a maximum personal penalty of $5,000.

Of course these penalties may be abated by the IRS pursuant to their discretion if the tax exempt organization shows just cause for the filing delay.

There may be other non-monetary failure to file penalties such as losing tax exempt status, see my article regarding the small tax exempt organization filing requirements.

Small Tax Exempt Organizations

The pension protection act of 2006 enacted a myriad of tax legislation changes. One item that was lost in the fold was its affect on Small Tax Exempt Organizations. Small tax exempt organizations are those with annual gross receipts of normally $25,000 or less.

This legislation effectively required all tax exempt organizations to file returns in order to keep their tax exempt status (prior to this legislation small charities were not required to file). In order to keep tax exempt status a small tax exempt organization must have filed at least one return in the last three years.

The legislation also created a new filing form for these small tax exempts known as the form 990-N ( or e-postcard). This filing form is very simple and is so easy to file, most tax exempt organizations should not have any reason to fail to file this form. However, many small tax exempt organizations that previously were not required to file have been caught in a precarious situation, if they have not filed any returns since the requirement came into effect in 2007.

There is good news for all those organizations who fall in this category. The IRS is offering a one-time "get out of jail free card" to all small tax exempt organizations that have not previously filed a required return. The IRS has said that all applicable organizations have until October 15 2010 to file required returns, and the IRS will not change their exempt status. In addition, they will not impose any non-filing penalties. It seems to be a win-win for the IRS and small tax exempt organizations.

If you believe your organization may be in danger there is a list published on the IRS website.

Click this link and it will take you to their web page.

As always consult a tax professional if you are unsure as to your specific tax situation.