Nonprofits at high risk of losing tax status
Little-known form is due now, IRS says
By Jay Tokasz
NEWS STAFF REPORTER
Published: October 11, 2010, 10:30 PM
WNY nonprofits identified by IRS
Updated: October 12, 2010, 7:05 AM
More than 1,000 of the region’s tiniest nonprofit groups are at risk of losing their tax-exempt status if they miss a deadline this week for filing a tax form with the Internal Revenue Service.
Block clubs, youth football and baseball leagues and professional organizations are among the small groups that have yet to file with the IRS, as required by an obscure change in federal tax law in 2006.
Filling out the required Form 990-N — through an online “e-postcard” — is relatively simple and takes about 10 minutes, according to IRS officials. But many of the groups on the IRS list are still unaware of this mandate, part of the Pension Protection Act of 2006. The regulation was implemented to help the IRS keep track of tax-exempt groups and weed out organizations that no longer exist.
For years, nonprofit groups that received less than $25,000 in a given year were not required to make an annual filing with the IRS. Those groups with budgets of more than $25,000 have long had to file a Form 990 detailing their expenses and revenues. IRS officials say they have been trying to get the word out since the law went into effect four years ago. The agency sent a half-million letters to tax-exempt groups in 2006 and has followed up with notices, news releases and, most recently, letters to the editor in newspapers. “We have been doing massive outreaches,” said Dianne Besunder, IRS spokeswoman in New York City.
Still, tens of thousands of groups across the country have not responded, and many organizations said they were not aware of the new requirements. Heidi Jones, a small-business and nonprofit group consultant and University at Buffalo law student, said tax-exempt organizations often “are completely surprised that they have to do this.”
The Pension Act of 2006 states that any tax-exempt group failing to file for three consecutive years automatically loses its federal tax-exempt status. Groups that lose their tax-exempt status would be subject to federal taxes on any income they receive. And reapplying for exempt status would cost hundreds of dollars.
An initial deadline of May 17 was extended to Friday, Oct 15 and the IRS developed a one-time relief program to get at-risk groups in compliance with the new regulations. The agency posted a list of groups that were out of compliance in July. More than 21,000 groups statewide made the list. Stop the Violence Coalition was one of more than 1,100 groups in Western New York included on the IRS list. The group, which takes in less than $25,000 a year, has been around since 2004, but organizers said they were not contacted directly by the IRS. “We didn’t know the status had changed,” said Arlee Daniels, an organizer. “We found out through one of the agencies that helps us through the United Way. One of the things we heard is they [the IRS] won’t notify you.”
The community group, which works to confront city violence, recently filled out the form and should be in compliance, Daniels said. In Tonawanda, the Big Wheels Bicycle Club learned of the need to file through the grapevine, as well. An accountant who knows a member of the group asked about whether the issue had been. But when Evalyn Katz, the group’s treasurer, recently tried to complete Form 990-N online, it was unavailable, she said. The form could not be printed and mailed to the IRS, either, she said.
Claudia Lee, treasurer for the Martha Avenue Block Club, said she received a mailing recently from the IRS but had not paid much attention to it and was unsure of its significance. “I didn’t really understand what I had to do,” she said. “Since you brought it to my attention, I’ll go home and take a closer look at it.”
The block club has never taken in much money, other than some dues and discretionary funding from the Buffalo Common Council, Lee said.
Lewis James, a volunteer who handles the bills and other duties for the Buffalo Pregnancy Care Center on Main Street, said he was unaware of the change in the law. “I didn’t get any direct mailing from the IRS or anything like that,” he said. The center has been around since 1984 and has used the same mailing address, he said. Only a call from The Buffalo News alerted James to the pending deadline. “I just wouldn’t have known otherwise,” he said.
Some of the groups on the list are now defunct. The St. Augustine Center, for example, is included, even though the human service agency was shut down in 2006 after severe financial trouble.
The e-postcard, available by clicking on the IRS Web site, www.irs.gov, will “weed out all the organizations that are on our rolls but no longer exist,” the IRS’ Besunder said.
The United Way of Buffalo & Erie County has linked up with students from the University at Buffalo Law School’s Clinical Legal Education program to offer free assistance to nonprofits with less than $25,000 of annual income. A session is being offered from 10 a.m. to 1 p.m. today at the United Way offices, 742 Delaware Ave. “We really don’t want to see these groups lose their status,” Jones said. “These little organizations do a lot for our communities.”