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Losing status
Organizations seeking reinstatement of their 501(c)(3) must use Form 1023, which is filed by all other applicants for tax-exemption.
Small organizations with an annual gross income of no more than $25,000 in the taxable years of 2007 through 2009 can re-file an application for $100.
Existing organizations seeking to have their status reinstated must complete an application and pay an application fee, typically $400 or $850, regardless of whether they were originally required to file such an application.
Nonprofits that can show reasonable cause for failing to file in consecutive years may be eligible for reinstatement retroactive to the date of revocation.
Source: www.irs.gov
By Elise Franco
The reasons behind why several hundred nonprofits in the Mahoning Valley allowed their tax-exempt status to lapse are just as varied as the organizations themselves.
The Internal Revenue Service has listed 275,000 nonprofit organizations countrywide that lost their tax-exempt status because they failed to file required annual reports for three-consecutive years, said Mark Hanson, IRS spokesman.
Among them were several hundred organizations from the Mahoning Valley, including a historical society, a 9/11 group and fraternal police organizations.
About 1.6 million organizations are registered as nonprofit under 501(c)(3) status, according to the National Center for Charitable Statistics.
This means these groups can accept donations tax-free, and people who make charitable donations can write it off on their taxes.
In 2006, the Pension Protection Act went into effect, requiring most small, tax-exempt organizations whose annual gross receipts are normally $50,000 or less to electronically submit Form 990-N, also known as the e-Postcard, Hanson said.
For small organizations, the law imposed a filing requirement for the first time in 2007, according to an IRS news release.
Hanson said he can think of a variety of reasons why organizations didn’t file the proper paperwork. He said it’s possible they didn’t fully understand the new law.
He urged organizations to visit the IRS revocation database — http://www.irs.gov/charities/article/0,,id=240099,00.html — to find out if they’re on the list.
Barb Smith, treasurer for the William Holmes McGuffey Historical Society, said she wasn’t aware that the 50-year-old organization was no longer tax-exempt until she was contacted by The Vindicator.
“We were so used to not filing anything under the old law,” she said. “It’s just something that went under the radar at the last minute.”
James Rosa, a certified public accountant with Hill, Barth and King LLC in Boardman, said it’s important that board members, especially the treasurer, have an understanding of the organization’s finances.
“It’s really important, and a lot of times people end up on these boards and don’t really understand the responsibility they have, whether they have a financial background or not,” he said. “Their intent is to deliver a service, and they don’t understand the financial requirement and responsibility and the importance of filing these forms.”
Rosa said these groups will benefit if they learn the law and file the appropriate paperwork on time.
“The form changed to make it a lot more comprehensive with the intent of creating transparency,” he said.
As someone who sits on nonprofit boards himself, Rosa said it’s crucial to have at least one person on the board who has a thorough understanding of finances.
“Whether it’s the treasurer or someone else on the board with some financial understanding, the experience will help the organization operate in a fiscally responsible manner,” he said.
Lisa Liposchak, treasurer of the Austintown Beautification Committee, said she is in the process of reapplying for tax-exempt status for her organization.
That committee was formed nine years ago to help fund and maintain the 9/11 Memorial on South Raccoon Road in Austintown, Liposchak said.
“I did know that we lost our status, and I’m in the process of getting it back,” she said.
Liposchak said it was confusion over the new law that caused the committee’s status to lapse.
“It was my understanding that if you bring in less than $50,000 per year, you didn’t have to file anything.” She said in 2010 the committee brought in about $10,000.
Hanson said this is not the case. Previously, tax-exempt organizations with annual gross income of $25,000 or less didn’t have any IRS filing requirement. Under the PPA of 2006, every organization is required to file, regardless of annual income.
Several local Fraternal Order of Police organizations — Boardman, Lodge 43; Girard, Lodge 52; Liberty, Lodge 65; Struthers, Lodge 41; and Campbell, Lodge 42 — also allowed their status to lapse.
Calls to FOP representatives in Campbell and Struthers weren’t returned Friday afternoon.
John Norman, Girard FOP Lodge 52 secretary, said though the union doesn’t often use it’s tax-exempt status, they want to be sure they’re following the law.
Norman said FOP members plan to meet with an accountant to discuss whether they need to re-file.
“We were unaware when the law changed of what we had to do,” he said. “We want to make sure whatever we do that we’re in compliance with the law.”
Hanson said it’s also likely that many of the organizations on that list are now defunct, though he doesn’t know how many.
But regardless of the reason, he said that if an organization is still operating and wants to regain its tax-exempt status, the IRS will help.
Organizations on the list that want to regain their status can apply for reinstatement, including retroactive reinstatement, and will pay only a $100 fee instead of the typical $400 or $850 fees, he said.
“From our standpoint, if an organization still exists and they want their status reinstated, we want to make sure they get the information to do just that,” he said. “This can impact their bottom line.”