Some small nonprofits to lose tax exemption status

By Katherine Lymn

Tax-exempt organizations including fraternities and sororities will be punished with a loss of their status next year if they have not filed with the Internal Revenue Service soon, as demanded in a 2006 provision.

The law was enacted as a part of that year’s Pension Protection Plan by the IRS, and aims to gather more information about the nonprofit groups excused from filing annual returns. Any group that has not filed for three consecutive years as of May 17 will lose its exemption.

Many small organizations —only those with under $25,000 in annual revenue are affected on May 17 — die or fade away without alerting the IRS, said Suzanne Coffman , spokeswoman for GuideStar , a tax-exempt organization information agency.

The groups were asked to file 990Ns , more familiar as e-Postcards, which are online forms that ask for basic information like the organization’s main address and the leaders’ names.

Part of the privilege of being tax-exempt, Coffman said, is a responsibility to make this basic information public.

The IRS is hoping to gain more basic information about small nonprofits with the provision.

“It’s really hard to allocate resources when you don’t know how many organizations you’re dealing with,” Coffman said.

Greek life groups are more likely to lose their status because of the high rate of turnover, said Jeff Narabrook , public policy assistant at the Minnesota Council of Nonprofits .

With the revolving door style of fraternity and sorority leadership, it is less likely members remembered to file the e-Postcard annually, he said.

Coffman said the IRS sent 645,000 letters nationally alerting nonprofits that needed to file the e-Postcard. She commended these efforts to alert groups of the change in procedure, which also included press releases and workshops.

“We’ve been trying in many, many ways to get the word out,” Lerner said “We took the list [of tax-exempt groups] that we had in our file, and we reached out and we sent letters to all of them explaining the new responsibility.”

These efforts have been as far-reaching as small notes to get the word out included on all federal government employees’ pay stubs, Lerner said.

Despite these efforts, Narabrook said not knowing about the requirement is likely the most common reason for the 4,400 Minnesota groups that had yet to file as of April 1.

Along with fraternities and sororities, other groups with high rates of turnover like parent-teacher groups, recreation clubs and amateur sports clubs may miss the deadline, Narabrook said.

“It’s all just volunteer-run, and that’s why it can be hard [to keep track],” he said.

“I think of it as when … you’re moving and you forget to forward all your magazines,” Coffman said. “It’s just something that doesn’t happen as often as it should.”

In extreme cases, this revocation may lead to serious economic troubles down the road. With the loss of their tax-exempt status, organizations’ donations are no longer tax-deductable for donors — a hit to both the financial and trustworthy side of the donations.

“From the point of view of a donor, why would you want to give to an organization that is not fulfilling its requirement to make information available?” Coffman asked.

Read more here: http://www.mndaily.com/2010/05/05/some-small-nonprofits-lose-tax-exemption-status
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