Form 990S Must Be Filed, Even by Start-Up Exempt Organizations

Form 990s Must Be Filed, Even by Start-Up Exempt Organizations

Fred Longwood

Tate & Tryon

December 2, 2014

Most organizations exempt from income tax under IRC Section 501(a) must file an annual information return, usually a Form 990 or Form 990-EZ, depending on the level of an organization’s gross receipts and amount of total assets. Organizations with gross receipts that fall beneath the $50,000 annual revenue filing threshold for the Form 990-EZ were once exempted from filing, but for several years now have had their own mandatory annual filing requirement. Organizations whose annual gross receipts are normally $50,000 or less must submit a Form 990-N electronic postcard. Additionally, all tax exempt organizations (except for those with no Form 990 filing requirement at all, such as churches) are subject to automatic revocation of their exempt status if they fail to file an information return for three consecutive years. Organizations that have their income tax exemption revoked for failure to file an information return for three consecutive years will need to reapply for income tax exemption.

For newly created organizations that are in the early stages of operations, careful consideration must be paid to this compliance requirement, since the three year standard could run most of its course before the organization’s income tax exemption is granted. The three year “clock” begins to run when the organization is legally formed; however, as a practical matter, the IRS considers the date the organization applies for and receives its employer identification number (EIN) as the date the filing clock begins to run. From the IRS’ point of view, therefore, it would be advisable to hold off on requesting an EIN until after the organization is legally organized or incorporated – a suggestion provided by IRS Tax Law Specialist Patricia Thomas recently, during an IRS “Tax Talk Today” webinar. In doing so, an organization has a better chance of receiving a favorable determination of income tax exemption before the end of the three year time frame.

Once the organization receives an income tax exemption, a Form 990-N may be submitted; otherwise, the organization is required to contact the IRS to request that a Form 990-N account be established to allow for the filing of the e-Postcard while the exemption application is pending. Self-declared exempt organizations that have not filed a Form 1024 to receive an official determination letter of income tax exemption will also not be eligible to file an e-Postcard, unless an officer of the organization contacts the IRS to establish an e-Postcard account.

Fred Longwood is a manager in Tate & Tryon’s Exempt Organization Tax Services department and can be reached at .