Will Your Nonprofit Lose Charity Status on May 15?

It may be April, but this is no Fool's joke. Up to 25% of the nation's officially recognized 501(c)3 Nonprofit Organizations have never filed an IRS form 990; the nonprofit tax return. That's been fine, as those organizations with income of under $25,000 have always been exempt... until now.

While smaller groups may still not required to file on an annual basis, a provision of the Pension Protection Act of 2006 included a requirement that the Internal Revenue Service revoke the nonprofit status of organizations that fail to file for three years in a row. That third annual deadline is fast approaching.

The IRS has sent out notices to thousands of organizations that may be effected and, with the lightning speed of bureaucracy, the actual de-certifications may not happen till January, but there are still likely to be small community organizations that fall through the cracks, don't get informed, and wind up with no tax-exemption.

Don't let this be your organization! If you are working or volunteering with a small, community nonprofit, make sure they've completed an IRS 990 or quickly request an extension and begin work on your filing.

I have mixed feelings about this new requirement. The 990 is not an easy form to complete. To compare it to personal taxes, it's more like the 1040 long form with extra schedules than the 1040 EZ. It frequently requires the assistance of professional accountants to complete correctly.

For an organization with less than $25,000 of income, this is quite an expensive burden and a cost way out line with their other expenses. That fact, of course, once reported properly on the next year's 990, will make the organization look inefficient and earn them poor ratings with those who analyze over-head to program cost ratios.

On the other hand, our sector is often accused of unprofessionalism and told to "be more business like." Tougher 990 standards that apply to all nonprofits is one way in which we prove our ability to manage donated funds in a prudent and professional manner. The 990 is required transparency; it is the window into our financial affairs by which we demonstrate the value of our work.

And, frankly, my own feeling is that the majority of the organizations that will be de-certified as a result of these new rules have probably ceased operating long ago. The de-certs will likely include many start-ups that never started, one and two-person organizations that lost steam and disbanded, and other dreams and good ideas that never quite made it.

Clearing these non-organizations off the rosters of legitimate charities could only be a good thing, as it will leave a clearer picture of what organizations are active, and all the good work that they are doing.

Tax Returns for the Tax Exempt

Did you remember to file your personal income taxes on time? I'm sure you did. And I'm sure you put a lot of care and effort into it.

What about your nonprofit organization's filings? As a public charity, your 990 filing each year is public information. You should be sure to remember that when preparing it. Most of us would be content to let the accountants handle the 990 and send it in without reviewing the text, but that would be a mistake.

Did you know that your 990 can be read by anybody with a free log in to GuideStar.org? In my work, I use GuideStar regularly to research the foundations that I send proposals to for my clients.

As a donor, I also look at the 990s on GuideStar to see things like executive compensation, mission statements, and income and expenses by program. More and more, savvy donors are using this resource before writing their checks.

So, what does this mean for you? Make sure that your finances tell the full story of your organization. Is there anything that would bring up questions from donors? Ensure that your reporting is clear and above-board. Also, that where you get to put in text about your programs, be sure to use that to tell your success stories.

Your 990 is not just a filing between you and the IRS; it is a public relations document which will be read by the public.