Nov. 7, 2009

To the editor:

Nearly 1,000 Alaska charities are just months away from losing their tax-exempt status. Most are small; many might not even know they are in trouble. Next May, the IRS will begin revoking the exempt status of groups that have not submitted Form 990-N, also known as the E-postcard.

Everyone gets two free passes with this online return for groups with up to $25,000 in gross receipts, but failing to file a third time in a row is fatal.

The 990-N and the three-year sunset rule were meant to help clean up the aging IRS nonprofit database. Small organizations had no annual filing requirement before the 2008 launch of Form 990-N, so IRS information on them was getting more and more out of date.

In a stunning Catch-22, these woefully out-of-date records were used to mail out notices about the changing rules. No wonder more than half the organizations that owe the IRS a 990-N have not filed. Odds are they don’t even know they are under threat of revocation.

Revocation of tax exempt status is serious. No 501(c)(3) means no deductibility for contributions, no bulk-mailing privileges and no access to any of the other perks charities enjoy.

It’s not clear whether the IRS plans to prepare substitute returns, perform audits or initiate collection actions. It is clear that any organization that wants its tax exempt status back will have to go through the expensive and time-consuming process of filing a new application.

The good news is that there’s still time to avoid these hassles. To check whether your favorite small charity has filed, visit www.irs.gov/app/ePostcard. To actually file, go to epostcard.form990.org. (Defunct nonprofits should indicate this is their “final” 990-N.) The 990-N has no late fee, so small nonprofits can file at any time for their most recently closed tax year. It’s not too late for delinquent Alaska nonprofits to come in from the cold.