Small Organizations Face New Filing Requirement

By R. Michael Sorrells, Cherry, Bekaert & Holland, L.L.P. (CB&H)
Email: msorrells@cbh.com

For years, there has been no Form 990 filing requirement for organizations that normally have less than $25,000 in gross receipts. However, beginning with the tax years ending December 31, 2007 and later, that has changed. With the exception of churches and certain related organizations, small organizations are now required to file using the brand new 990-N.

This so-called “electronic postcard” is filed electronically with the IRS. Information about the filing and a link to the form itself can be found in the nonprofit section of the IRS Web site at www.irs.gov. This filing only requires certain basic information about the organization, such as EIN, legal name, dba name(s), and mailing address, along with a confirmation that gross receipts are normally under the 990 filing threshold.

It is essential that small organizations comply with this new requirement because exempt status will be revoked if the form is not filed for three consecutive years.

Please note that under new rules recently promulgated, supporting organizations (i.e., 509(a)(3) entities), are now required to file Form 990 or 990-EZ even if their gross receipts fall below the $25,000 threshold. As a result, the electronic postcard will not suffice for these highly scrutinized organizations.

Additionally, the 990-N filing is not applicable for private foundations. As has always been the case, there is no gross receipts minimum for filing Form 990-PF.

The IRS has also recently announced that the $25,000 threshold, which had never been indexed for inflation, will be raised to $50,000 beginning with calendar years ending December 31, 2010. So for the 2010 tax year, more organizations will be able to take advantage of filing Form 990-N instead of the 990 or 990-EZ.

Lastly, please note that the rules say “normally” under $25,000. “Normally” is defined as the average gross receipts of the year in question and the prior two years. So it is possible to have an income bubble in one year, and not be required to file as long as the average stays at $25,000 or less. For organizations less than three years old, special rules apply to define “normally”.

If you are on the board or are a member of such a small organization, it would be prudent to ensure that the organization is aware of this new requirement. Unfortunately, many of these small organizations have a yearly rotation of officers, and consistent procedures are difficult to maintain from year to year. But this filing is one procedure that has to be maintained.

Mike is a Partner with CB&H’s Not-For-Profit Industry Group and Director of the Firm’s Nonprofit Tax Services.