Small tax-exempt organizations whose annual gross receipts are normally $25,000 or less were under prior law not required to file information returns.  This is no longer true.  Annual returns are required for all tax-exempt organizations.  A Form 990-N must now be filed for these small organizations.  For small organizations whose tax years ended on December 31, 2007, returns were due by May 15, 2008.  For those with a tax year ending after that date, the return is due by the 15th day of the 5th month after the close of the taxable year.  For those organizations that have not yet filed for their 2007 fiscal year, there is no penalty for late filing.  The Form 990-N is totally paperless; it is available and filed online.

Failure to file the Form 990-N can have serious adverse consequences.  An organization that fails to file the return for three consecutive years will lose its tax-exempt status.

Some organizations such as churches, their integrated auxiliaries, and conventions or associations of churches, and organizations that file together as part of a group return are not required to file the new form. 

IRS Eliminates Advance Ruling Process

On September 9, the IRS issued new temporary regulations that eliminate the advance ruling process for charitable exempt organizations.  Under prior law, an organization that wished to be recognized by the IRS as a publicly supported charity rather than a private foundation was required to file a two-step process.  The organization was first required to state as part of its application for exempt status that it expected to be publicly supported on an on-going basis.  If it was determined that the organization was tax-exempt, these organizations would receive what was known as an “advance ruling” that it was a publicly supported charity.  The organization would be required to file a separate form after five years to show the IRS that it actually had met the public support test in order to receive a final ruling.  If it could not demonstrate this, the organization would be considered a private foundation.  The new regulations no longer require an organization to make this second filing.

Instead, under the new procedures, an organization that (i)the IRS has determined to be tax-exempt, and (ii) has declared in its exemption application that it expects to be a publicly supported charity, will retain its publicly supported status for its first five years of existence.  This is true regardless of the public support it actually receives during that time.  Beginning with its sixth taxable year, the organization will be required to establish that it meets the public support test on its Schedule A to its annual return, the Form 990.  Small organizations that are required to file the Form 990-N are not required to file Schedule A to Form 990.  If, however, such an organization believes that it has not met the public support test for two consecutive years and that its status should be changed to a private foundation, it should then complete Schedule A and file a Form 990-PF.

Transition rules apply to those organizations that have already received advance rulings from the IRS but have not yet filed the second form.  These organizations are no longer required to make the second filing.  Instead, such an organization will be treated as publicly supported organization for its first five years of existence and will be required to demonstrate that it meets the public support test in its sixth and following years by completing Schedule A of Form 990.

Circular 230 Disclosure To ensure compliance with requirements imposed by the IRS, unless specifically indicated otherwise, any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of avoiding tax related penalties or promoting, marketing or recommending to another party any tax related matter addressed herein.