Louis E. Michelson, A Professional Corporation

In the IRS EO Update dated December 15, 2010, the IRS released its FY 2011 Implementing Guidelines.   The following excerpt from the Guidelines is captioned:  Spotlight:  Filing Relief Program:

Background: The Pension Protection Act of 2006 made two important changes affecting tax-exempt organizations, effective the beginning of 2007. First, it requires all tax-exempt organizations, other than churches and church-related organizations, must file an annual return with the IRS. That includes small tax exempt organizations with gross receipts of $25,000 or less and had not previously had a filing requirement. They now are required to submit a Form 990-N, also known as an e-Postcard. Second, it mandates that any tax-exempt organization that fails to file for three consecutive years automatically loses it federal tax-exempt status.

Current Efforts: The first three-year filing deadline that could trigger revocation for failure to file was May 17, 2010. Despite an extensive outreach effort for the past three years, once the filing date arrived, the IRS realized that many organizations continued to be unaware of the tax law changes. On May 18, Commissioner Shulman announced that the IRS would provide additional guidance to help these small organizations maintain their tax-exempt status—even if they had missed the filing deadline. The Commissioner encouraged them  to continue filing and reassured them that the IRS would do what it could to help them avoid losing their tax-exempt status.

On July 26, 2010, the IRS announced a one-time two-part relief program to bring these small nonprofit organizations back into compliance. First, the program extended the filing deadline to October 15 for the smallest organizations, those eligible to file the Form 990-N, the e-Postcard. Second, it provided for a voluntary compliance program for those eligible to file the Form

990-EZ for the past three years. Under this program, an organization had to file its three delinquent returns and pay a small fee by October 15. Form 990 and 990-PF filers were not eligible to participate in this program. The IRS posted a list of the names and last-known addresses of more than

300,000 at risk organizations with filing due dates from May 17 through October 15, 2010, and no record of having filed a required annual return or notice for 2007, 2008 or 2009.

Immediately following the Commissioner’s announcement, the IRS expanded its outreach efforts to alert the tax-exempt sector of the relief program. As a result, during the Filing Relief Program (between May 18 and October 15), more organizations filed 990-Ns than during the previous five-month period.

Post-October 15: Eligible organizations that properly filed according to the Filing Relief Program will remain tax exempt.

Revocation: By operation of law, organizations that failed to file annual information returns for three consecutive years, and organizations eligible to participate in the filing relief program that failed to do so by the October 15 deadline, automatically will be revoked as of the original due date of their third return. In early 2011, the IRS will notify these organizations, and will publish their names by posting a list of revoked organizations on IRS.gov. Each month, as subsequent filing due dates pass, the IRS will expand the list to include the names of additional organizations that are revoked for failure to file for three consecutive years.

Contributions and tax deductions: Donors who contribute to organizations otherwise eligible to receive tax-deductible contributions can continue to take a tax deduction until the IRS publishes the name of the organization on the list of revoked organizations. A contribution to an organization listed on the IRS site as having lost its tax-exempt status is not tax deductible.

Reinstatement: An organization that wishes to retain its tax-exempt status must apply to have its tax-exempt status reinstated, even if it was not originally required to file an application for exemption. To do so, it must:

• File either Form 1023 or 1024, as appropriate;

• Pay the appropriate user fee; and

• Write automatically revoked on the top of the application and envelope.

EO Determinations will review the applications received in the normal course of business.

On-going Education: EO will continue its aggressive educational program to alert tax-exempt organizations of their annual filing requirements and the consequences of not filing.

Compliance Review: EO will conduct a compliance review of organizations that filed a Form 990-N but previously reported financial activity indicated they were ineligible to do so.