Four Important Reminders For Nonprofits.

September 10, 2024

Nonprofit tax compliance may be the most important issue for tax-exempt organizations. Organizations that don’t maintain compliance with the Internal Revenue Service (IRS) can be assessed penalties or even lose their tax-exempt status. Don’t let this happen to your organization! We note four important reminders below to help you avoid penalties or automatic revocation.

  1. Update your address with the IRS

Remote offices and work are a part of our new normal as the dust settles from the pandemic. If an organization you work for or serve has changed its in-office policies or has done away with its office space altogether it’s important to make sure the IRS knows how to contact the organization and its responsible party. IRS regulations require any entity with an EIN to update the Responsible party information, including address changes, within 60 days of any change by filing IRS Form 8822-B. It would be an unfortunate predicament if the IRS is sending correspondence to an organization that no longer receives mail at their former address, particularly if the organization was being informed that the IRS had not received its annual 990 IRS filing. So be sure to update your address with the IRS! Our nonprofit team at Rubino can assist with these IRS filings or help if you have any other questions.

  1. Don’t make these common errors

Returns that are incomplete can be considered by the IRS as not filed and failure to file penalties can be assessed for an incomplete return, such as by failing to complete a required line item or a required part of a schedule. According to the IRS, the most common errors on the Form 990 series returns are missing information or incomplete schedules – be sure to avoid the most common issues as follows:

  1. Be sure you file the proper version of Form 990 for your tax period.
  2. Double check your identifying information.
  3. Complete Parts I through XII.
  4. Be sure to sign the return.
  5. Do not include unnecessary personal identifying information.
  6. Determine which schedules are required.
    1. By completing Part IV, Checklist of Required Schedules, you can determine which schedules are required. Be sure to fully complete and attach all of the required schedules. When completing required schedules, always:
      • Carefully read the instructions for each required schedule
      • Complete all applicable parts and lines
      • Answer yes or no to each question (unless otherwise instructed for a particular question)
      • Make an entry on all total lines including zero (0) when appropriate

Our nonprofit team at Rubino can assist with filing complete and accurate returns or help if you have any other questions.

  1. Be sure to electronically file your annual return and other IRS filings required to be e-filed

Effective for tax years beginning after July 1, 2019, the Taxpayer First Act requires organizations exempt from taxation under section 501(a) to file their annual Form 990 and Form 990-PF returns electronically, unless covered by one of the exceptions listed in the form instructions. Form 990-EZ filers are required to file electronically for tax years ending July 31, 2021, and later. IRS: Recent legislation requires tax exempt organizations to e-file forms contains a summary of e-filing requirements.

The IRS sends back Form 990 series returns filed on paper – and rejects electronically filed returns – when they are materially incomplete or the wrong return. If the IRS sends back your organization’s return, follow the instructions in the accompanying letter and on Filing procedures – incomplete returns.

Starting tax year 2023, if you have 10 or more information returns, you must file them electronically. Review A guide to information returns and e-file information returns Form 1099 with the Information Return Intake System (IRIS) for tax year 2022 and later.

Our nonprofit team at Rubino can assist with electronically filing returns or help if you have any other questions.

  1. For Public Charities – make sure you are passing the public support test

To maintain public charity status, an organization must continue to meet the public support test. This test calculates how much of total support given to the organization is considered as being received from the public. Too much in contributions from single sources that are not governmental entities or other publicly supported charities could result in an undesirable position of becoming a Private Foundation.

There are two public support tests for public charities: One for organizations described in sections 509(a)(1) and 170(b)(1)(A)(vi) of the Internal Revenue Code, and one for organizations described in section 509(a)(2). Both tests measure public support over a five-year period.

Generally, the 509(a)(1) test requires that the organization receive at least one-third of its support from contributions from the general public, or meet the 10 percent facts and circumstances test.

Generally, the 509(a)(2) test requires that the organization receive more than one-third of its support from contributions from the general public and/or from gross receipts from activities related to its tax-exempt purposes. Under the 509(a)(2) test, an organization can receive no more than one-third of its support from gross investment income and unrelated business taxable income.

If the organization doesn’t qualify as a publicly supported organization under the 509(a)(1) test, it can complete Part III to determine if it qualifies as a publicly supported organization under section 509(a)(2). And vice versa, if the organization doesn’t qualify as a publicly supported organization under section 509(a)(2), it can complete Part II to determine if the organization qualifies as a publicly supported organization under the 509(a)(1) test.

If the organization is unable to pass either the 509(a)(1) test or the 509(a)(2) test and did not meet the test in the prior reporting year then the organization doesn’t qualify as a public charity and would be a Private foundation as of the beginning of the tax year. For IRS filing purposes, it would need to file Form 990-PF for Private Foundations instead of Form 990. On the Form 990-PF it would check the box at the top of Page 1 indicated an “initial return of a former public charity”.

Private Foundations are subject to a different tax regime, including but not limited to the excise tax on investment income and required distributions.

Our nonprofit team at Rubino can assist with understanding your public support test and how to improve the percentage so you can maintain your public charity status or help if you have any other questions.

Penalties can be assessed for Late filed or incomplete Returns

If an organization fails to file a required return by the due date (including any extensions of time), it must pay a penalty of $20 a day for each day the return is late (this can go up to $105 a day for organizations with higher gross receipts). The same penalty applies if the organization does not give all the information required on the return or does not give the correct information. Use of a paid preparer doesn’t relieve the organization of its responsibility to file a complete and accurate return.

If you do end up receiving a penalty notice for late filed or incomplete returns you may be able to request abatement of the penalty for reasonable cause. A filer may request abatement of a penalty in a written statement setting forth all the extenuating circumstances. You may make the request in response to a penalty notice that you receive or, in the case of Forms 990 or 990-PF, when you electronically file the return. Explain what facts previously prevented the electronic filing. Include the date of the attempted paper filing.

Our nonprofit team at Rubino can assist with penalty abatement or help if you have any other questions.

Don’t Lose Your Tax-Exempt Status

Organizations that do not file for three consecutive years automatically lose their tax-exempt status. An automatic revocation is effective on the original filing due date of the third annual return or notice. If an organization’s tax-exempt status is automatically revoked, it is no longer exempt from federal income tax. An automatically revoked organization is not eligible to receive tax-deductible contributions and will be removed from the cumulative list of tax-exempt organizations, Publication 78. State and local laws may affect an organization that loses its tax-exempt status as well. An automatically revoked organization must apply to have its status reinstated, even if the organization was not originally required to file an application for exemption.

The IRS publishes the list of organizations whose tax-exempt status was automatically revoked because of failure to file a required Form 990, 990-EZ, 990-PF or Form 990-N (e-Postcard) for three consecutive years. The IRS updates the list monthly. Check to make sure your organization is in good standing and has not been automatically revoked: https://apps.irs.gov/app/eos/.

Our nonprofit team at Rubino can assist with questions about an automatic revocation or help if you have any other questions. Please contact us through our website https://rubino.com/contact/

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