'Doomsday' nears for small non-profits
May 17, 2010 is being called "doomsday" for many small non-profit organizations in Minnesota.
That's the day they'll lose their 501(c)(3) tax-exempt status and be ineligible to receive tax-deductible contributions unless they go online and file form 990-N.
The change affects about 4,400 small nonprofits in Minnesota - including 55 in Douglas County.
It's all because of a 2006 law. It requires organizations with financial activity of less than under $25,000 that operate on the calendar year to file by May 17, 2010 or they will have their tax exemption revoked.
Previously, such organizations were not required to submit an annual return with the IRS.
The new requirement does not apply to churches and church-related organizations.
The number of organizations impacted may not be as high as feared, however, because an unknown number of those organizations are no longer active.
A list of the organizations that haven't filed yet is available on the Minnesota Council of Nonprofits website, www.mncn.org (click on "Download a list of small nonprofits yet to file").
The list includes many service organizations, 4-H groups, associations and chapters.
The Echo Press went through the list and created a spreadsheet showing 55 organizations in Douglas County that had not filed form 990-N, as of May 1 (see related story).
One of them was the Alexandria Eagles Auxiliary. First-time secretary Molly Baumann said she received a notice from the IRS last week stating that the form was needed but as of Monday, she was still waiting to hear back from the IRS help desk about the particulars.
"It was a surprise," she said. "I didn't know this was coming."
Non-profit organizations throughout the state are reacting in much the same way - with surprise and some confusion about what they are supposed to do to meet the new requirement.
According to the Minnesota Council of Nonprofits, filing is simple: the chief person from the organization can return the form online through an approved IRS 990N e-file provider at http://epostcard.form990.org/.
If the organization has been dissolved, the IRS should still be notified through this form, in part so that a more accurate portrait of how many nonprofits currently operate in the state can emerge.
The cost will be significant for those that fail to meet the deadline. If the exemption is revoked, organizations will need to reapply and pay the standard fee of up to $750.
Assuming at least half of the 4,474 organizations that have not filed are still operating and had to reapply, it could cost $3.3 million collectively merely to have their tax exempt status reinstated - not to mention the time and trouble of applications and attorney's fees.
"The Minnesota Council of Nonprofits is contacting as many organizations as possible on this list," said Jon Pratt, the organization's executive director, "And we also recommend that people involved in small nonprofits double check the list from the link at MCN's website. It would be an expensive distraction for small volunteer groups to have to come up with $750 to reinstate the tax status they thought they already had."
All volunteer organizations that have had address changes in recent years are expected to be most heavily hit by the deadline.
Small organizations often have an operating address at the home of the board chair or treasurer, and unless the address was updated with the IRS after a change of leadership the IRS notification letter of the deadline may have never reached the necessary individuals, according to the council.
The council urges small nonprofit organizations to take the time now to make sure they are in compliance with the new requirements. Those who participate in or know of small nonprofits with annual receipts of less $25,000 in their community are encouraged to notify the organization's chief individual of the coming deadline so that they can avoid a costly error.
Organizations can request an extension of their filing date by filing Form 8868 by the original due date, according to the IRS. Absent a request for extension, there is no grace period from filing by the original due date.