July 27, 2010

Internal Revenue Service Publishes List of "At-Risk" Charities and Announces One-Time Relief 

On Monday, July 26, 2010, the Internal Revenue Service (IRS) posted a page on its website listing organizations at risk of losing their tax-exempt status due to a failure to file their required annual returns for the past three years.  The IRS also announced one-time relief, which will allow certain organizations on the list to file their returns (even if overdue) and retain their exempt status. 

While large exempt organizations have long been familiar with the annual requirement for filing a Form 990, many smaller organizations previously were exempt from the requirement by virtue of their size.  This changed with the Pension Protection Act of 2006, which compels all exempt organizations, regardless of their size, to file a Form 990 (except for churches and others exempt from the requirement).  Smaller organizations may satisfy this requirement by filing an "e-postcard," which is a short form accessible through the IRS web site.  Under the Pension Protection Act, an organization that fails to file a Form 990 (or its equivalent) for three consecutive years automatically loses its exempt status.  Because the requirement began with the 2007 Form 990, the IRS now is identifying the first wave of organizations that have failed to satisfy the requirement. 

The IRS listing, which is accessible through the IRS web site at http://www.irs.gov/charities/article/0,,id=225889,00.html, includes all organizations believed by the IRS to have failed to satisfy the filing requirement for three consecutive years.  The listing is organized by state.  The IRS acknowledges that the listing may be incomplete, as it does not include subordinates in group rulings or smaller Code Section 501(c)(3) organizations that were not required to file an application for exemption. 

All organizations should check this listing to ensure that neither they nor any of their affiliates are included on the list. 

For many smaller organizations included on the list, however, all hope is not lost.  Also on July 26, the IRS announced a voluntary compliance program, giving organizations eligible to file the e-postcard or Form 990-EZ until October 15, 2010 to file their required information returns.  With the Form 990-EZ, a compliance fee may be required.  Significantly, the voluntary compliance program is not open to larger public charities required to file the Form 990 or a private foundation required to file Form 990-PF. 

Organizations included on the list should contact their counsel to determine the appropriate course of action. 

Should you have questions regarding these issues, please contact Jeff Carmichael (317.977.1443 or jcarmichael@hallrender.com) or your regular Hall Render attorney.