Thousands of small nonprofits may miss IRS deadline that will cost them their tax exemption

Thousands of nonprofits may lose tax-exempt status

DES MOINES, Iowa — More than 200,000 small nonprofits across the nation are days away from losing their tax-exempt status because they haven’t filed a new form with the Internal Revenue Service.

Many of these groups already operate on razor-thin budgets and some worry an unexpected tax bill could force organizations to close.

“The nonprofits in your backyards, some of them are going to be gone,” said Suzanne Coffman, a spokeswoman for GuideStar, which tracks data on nonprofits.

It’s most likely the nonprofits aren’t aware of the Monday deadline that only applies to groups that report $25,000 or less in income, excluding churches. Those organizations may not find out until Jan. 1, 2011, when they’re notified they have to pay taxes on donations they thought were exempt. And it could be months before their nonprofit status is restored.

Congress required the form, called a 990-N, when it amended the tax code three years ago and groups with a fiscal year ending Dec. 31 had until Monday to meet the deadline.

The Urban Institute’s National Center for Charitable Statistics, which conducts economic and social policy research, estimated Friday that 214,000 nonprofit organizations haven’t filed the form as required.

Tom Pollak, program director for the center, said organizations that lose their tax-exempt status are no longer eligible to receive tax-deductible donations and are not likely to be awarded grants.

Donors who give to the organizations that lose their status will be able to receive tax-deductions on gifts until January because the revocations won’t be public until then.

In Iowa, the Warren County Historical Society was among more than 2,700 small nonprofits that hadn’t submitted the form. The group’s president, Linda Beatty, said she’d never heard of a 990-N until contacted by The Associated Press.

Beatty said she would scramble to get their application in, but if the society lost its nonprofit status, donations likely would drop and members would struggle to pay taxes until they could get the situation resolved. The group maintains a small museum and historical library in Indianola, south of Des Moines.

Stephen Baldassare, president of the Catwalk Theatre Guild in Arvada, Colo., said loss of its tax exemption would have endangered the college scholarships his group awards annually to two high school students and limited other programs.

“It’s huge giving those scholarships,” he said. “We’d also have to figure out how to do the rest of the functions we do. We would have to change how we bring in money.”

In West Chester, Pa., the A Cappella Pops performing group also hadn’t heard about the deadline.

Money already is a problem for the 40-member singing group, marketing director Bruce Koepcke said, and would have been far worse if donations dropped or the group faced a big tax bill. He said tax-exempt donations make up 25 percent of the group’s revenue.

“We break even in good years,” Koepcke said. “We can’t afford to lose one iota of funding.”

Bobby Zarin, an Internal Revenue Service director who works with non-profits, said the agency sent out press releases and letters to more than 500,000 nonprofit organizations to get the word out about the 990-N forms. She didn’t know why the change was catching so many groups by surprise.

“I can honestly say this is the most extensive outreach we have done,” Zarin said.

Ultimately, Zarin said the requirement would be helpful because it would eliminate defunct organizations from IRS records and provide more transparency for the public.

“It will give us a much cleaner list of organizations that actually do exist,” Zarin said. “More organizations will be filing, so more information will be available.”