By Cliff Ennico
“Some friends and I formed a nonprofit organization 10 years ago to help at-risk youth in our community.
We had a few good years but then things fell apart. One of our board members left town because her husband got a new job. Another board member got divorced and stopped attending meetings because she didn’t want to bump into her ex.
We kept holding meetings. People showed up, and we gave them work to do, but none of it ever got done even when we reminded them they had to do it.
The last straw came this week. We needed to get a sales tax exemption for some furniture we bought, and the store called us and said they couldn’t give us the exemption because our nonprofit status had been terminated by the IRS.
It turns out the person we counted on to file the IRS annual report didn’t do it for three years in a row.
What can we do about this, and more importantly, what can we do in the future to keep this organization alive?”
Just about every nonprofit organization I have ever worked with faces this problem at some point: people are keen to volunteer to help out in a good cause, but just try to get them to do any work!
A nonprofit organization that has received tax exempt status from the IRS is required – required – to file an Annual Report each year using one of the IRS’ Form 990 forms. If your total gross income last year was less than $50,000, you file Form 990-N electronically, which takes all of 10 minutes. If your total gross income last year was bigger than $50,000 but less than $200,000 (and your total assets were less than $500,000), you file Form 990-EZ, and if your total donations last year was greater than $200,000 (or your total assets were greater than $500,000) you file Form 990.
If you fail to file the appropriate form three years in a row, your organization loses its tax-exempt status.
It’s fairly easy to revive (or “reinstate”) your organization’s tax-exempt status as long as you received your “revocation letter” from the IRS within the last 15 months (see www.irs.gov/charities-non-profits/charitable-organizations/automatic-revocation-how-to-have-your-tax-exempt-status-retroactively-reinstated). You must re-file for tax-exempt status using the same form you used initially to apply for tax-exempt status (for the vast majority of organizations, this will be either Form 1023 or Form 1024). Since your organization appears to be a charitable 501(c)(3) organization, you would file Form 1023.
Hopefully, someone in your organization has kept a copy of the Form 1023 you originally filed with the IRS. If that’s the case, you will just need to bring that information up to date, which will save countless hours of time. If no one kept a copy of the Form 1023, then you will have to prepare a new one from scratch.
In either case, you will have to pay a filing fee of $850 if your organization had more than $10,000 in gross income last year ($450 if your organization made less than that). Make sure your cover letter to the IRS clearly states that your organization is “reinstating after an automatic revocation” of tax exempt status. It may take several months to get your organization reinstated, but if that happens the reinstatement will be retroactive to the date your tax exempt status was revoked.
That’s the easy part.
Your organization faces a bigger challenge, however, which is making sure your board members are doing their jobs so this never happens again.
In my experience, 99% of the work involved in a nonprofit organization is handled by a “core group” of 2 to 3 people. There may be other folks named in the paperwork as officers, directors or trustees, but in practice everything is done by the “core group”. “Core group” members are often relatives, neighbors or close personal friends who treat meetings and projects as social events – a pleasure rather than a chore.
When someone in the core group dies, moves or quits the organization, a lot of balls end up being dropped, as happened here.
To keep a nonprofit organization on “life support,” there are two jobs you need to do yourself:
- Make sure the organization files the appropriate Form 990 each year — pick a day that’s easy for you to remember (such as your birthday or wedding anniversary) and write “Form 990” in your calendar so you don’t forget to do it;
- If your organization was formed as a corporation or limited liability company (LLC), look up your organization on your state Secretary of State’s website (search online for “[name of state] Secretary of State business search”) and make sure your corporate or LLC Annual Report is filed each year.
DO NOT delegate these tasks to anyone but yourself. If you are not willing or able to do them, no one else probably will, so I would shut this organization down.
Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com. COPYRIGHT 2017 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. @cliffennico.
