Sunday, May 4, 2014

Tax Exemption: A Precious Status, Take Care Not To Lose It!!


Martin Luther King Jr said, "Life's most persistent and urgent question is, what are you doing for others?" Daily routine is an all-consuming machine, we do forget to ask ourselves this question.  



Speaking of doing something for others, brings to mind Charitable Organizations. May 15th is creeping up on us real fast. And for those of us who have non-profit organizations as clients, we know that it is the deadline to file Form 990. This form is due on the 15th day of the fifth month after an organization's tax year ends. Since most use the calender year, the deadline for them is May 15th. 

A non-profit or a tax-exempt organization is one which seeks exemption from federal income tax under section 501 (a). To qualify for exemption under the code, your organization must be organized for one or more purposes as specifically designated in the code. 

The difference between a non-profit and tax-exempt status according to the IRS is, "nonprofit" is a state law concept. However, being granted this status at the state level does not automatically make it tax-exempt at the federal level. One has to file Form 1023 to obtain exemption from federal tax. This is a long, laborious and sometimes expensive process. 

This exemption obtained with so much hard work must be maintained at all costs. Consequences of non-filing of Form 990, 990-EZ or 990-PF or submitting a From 990-N for three consecutive years is automatic revocation of the tax-exempt status. 

In addition to receiving a letter for the automatic revocation, the IRS also lists the name, last known address and EIN and other details about the organization on it's Auto-Revocation of Exemption List.  This is a public list and is available on the Exempt Organization Select Check Tool to the public within a month of the revocation. 

For an organization collecting tax deductible contributions from the public, being on this list is a sign of negligence. The contributions may stop coming in if the donors look for the it's legibility online and find it on the Auto Revocation of Exemption List.

In order to avoid being in such a situation, an exempt organization needs to hire a tax professional with knowledge of non-profits & their requirements. This tax professional would make sure that the organization is current with it's filings and is on track to staying exempt.

Bibliography: irs.gov Exemption Requirements;  Stayexempt.irs.gov; From 990 Instructions; Other IRS Rules & Regulations.  

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As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. 
More of my contact information is on my website, www.mntaxsolutionsllc.com