New Reporting Requirement for Small Charities

Will churches be required to file IRS Form 990-N?

Church Finance Today

New Reporting Requirement for Small Charities

Will churches be required to file IRS Form 990-N?

Most tax-exempt organizations are required to file an annual information return with the IRS on Form 990. This form consists of more than 100 questions that are designed to provide the IRS with information about an organization’s finances, activities, and administration. Some exempt organizations are not required to file Form 990, including:

  1. Organizations with annual gross income of $25,000 or less, or
  2. Various religious organizations, including:
    • churches
    • interchurch organizations of local units of a church
    • conventions and associations of churches
    • integrated auxiliaries of a church (such as a missions society)
    • a missions society sponsored by, or affiliated with, one or more churches or church denominations if more than half of the society’s activities are conducted in, or directed at, persons in foreign countries
  3. The Pension Protection Act of 2006 included a provision requiring small tax-exempt organizations that are not required to file Form 990 because they have annual gross income of $25,000 or less to file Form 990-N (also known as the e-Postcard) with the IRS annually. This new filing requirement takes effect in 2008. The Pension Protection Act requires the IRS to revoke the tax-exempt status of any organization that fails to meet its annual filing requirement for three consecutive years. Therefore, organizations that do not file the e-Postcard (Form 990-N), or an information return Form 990 or 990-EZ, for three consecutive years will have their tax-exempt status revoked as of the filing due date of the third year.

    Some church leaders have heard of this new requirement, and are wondering how it applies to churches. The simple answer is that it doesn’t. The new Form 990-N reporting requirement only applies to tax-exempt organizations that are not required to file Form 990 because their annual gross income is normally $25,000 or less. The IRS has stated that “this filing requirement does not apply to churches, their integrated auxiliaries, and conventions or associations of churches.”

    Key point. The IRS mailed educational letters starting in July 2007 notifying small tax-exempt organizations that they may be required to file the e-Postcard (Form 990-N).Some church leaders have seen copies of this notice, which has created some confusion regarding the application of the new reporting requirement to churches.

    The e-Postcard (Form 990-N) asks for the following information: (1) the organization’s name; (2) any other names the organization uses; (3) the organization’s mailing address; (4) the organization’s website address; (5) the organization’s employer identification number (EIN); (6) the name and address of a principal officer; (7) the organization’s annual tax period; (8) a statement that the organization’s annual gross receipts are still normally $25,000 or less; and, if applicable (9) indicate if the organization is going out of business. The Pension Protection Act of 2006 added this filing requirement to improve “transparency” within the non-profit sector. The information will ensure that the IRS, as well as donors who may want to contribute to small charities, have current information.

    The IRS is developing an electronic filing system (there will be no paper form) for the e-Postcard and will publicize filing procedures when the system is completed and ready for use. The form will be due every year by the 15th day of the fifth month after the close of an organization’s tax period. For example, for organizations with a tax period ending on December 31, 2007, the e-Postcard is due May 15, 2008.

    This article first appeared in Church Treasurer Alert, October 2007.

    Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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