There are many organizations that operate like they are tax-exempt, even though they are not. Some of this may be due to a lot of factors. Maybe the organization was small when they first started and they didn’t need to register, and then they got a lot larger. Maybe they were tax exempt at one point but they didn’t keep up with the IRS filings. Stuff like that is not uncommon, because many boards are made up of volunteers and those positions change pretty frequently.

One thing I know talking about all of these topics here is that the IRS is a moving target, isn’t it? They’re always changing things and you have to change with them. So how would an organization know if they’re tax exempt?

That’s a really good question, Jim. There’s a number of things that can really tip you off whether you’re actually a tax-exempt organization or not.

#1: Has somebody from your organization been filing the annual returns that are required by the IRS?
If not, you could go to the IRS website and do a search for your organization. The IRS used to have publication 78, which was just a listing of all the organizations that they had on file. Now a lot of that has gone online. So you can actually just go to the website and to see if your organization is actually exempt in the IRS’s eyes.

Now there are certain ones that don’t have to do annual filings, which include churches and affiliated organizations to churches and governmental units. So those are actually exempt by rule, not necessarily by what they file on an annual basis. The cool thing about the website is that it can be used by the organizations to figure out if they’re exempt, or by the donors to see if they are donating to a viable organization.

This sounds complex. How does an organization know what they need to file on an annual basis?

Well, it really depends on how many gross receipts they have. Even if you are a small organization, you file what’s called a 990N. It’s a postcard. It basically just asks for your gross receipts, whether you’re still in business, and your contact information. If you’re a smaller organization, it’s very easy to file. As you get bigger and bigger, let’s say $50,000 or more, then you start filing the 990 series, whether it may be the 990EZ, the regular one, the PF, just the 990 in general.

So what circumstances could tax-exempt organization status be revoked?

A number of years ago, the IRS went through their database to see which organizations that they had on file as tax-exempt, but haven’t been filing tax returns. They then came out with a rule and guidance that says if you haven’t filed a tax return for three consecutive years, then they’re going to essentially revoke your exempt status and you have to start over. If that happens, the IRS is going to treat you like you’re a taxable organization. Which means if you have net income from your donations minus your expenses, then you’re going to have to pay income tax on that amount. If your name appears on the website that we just talked about for searching for exempt organizations, your organization is going to show up as revoked.

Wow! So a lot of these tax-exempt organizations are governed by boards. Board members come and go and everything like that. Is there a way to search for the last tax return if it’s filed?

There is. So if you’re not sure if your previous person actually filed a tax return, you can do one of two things:
1. You can go onto the IRS website. If you’re a smaller organization those 990N postcards for filing under $50,000 of gross receipts are listed on the website.

2. If you’re a larger organization you can actually go to a website called www.guidestar.org and you can get a copy of the last postcard that was filed. Now it might not be the last one that was filed, but it’s the last one they’re showing that was filed in their system. You can see if you are up to date on filings and what you’ve done in the past.

The web has become very handy in this situation, hasn’t it?

It really has!

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Jeff Dvorachek
I joined Hawkins Ash CPAs in 1998. I am the partner-in-charge of the Manitowoc, WI, office and tax director for the firm. I have thorough experience providing tax services to individuals, commercial businesses, nonprofit entities and estates and trusts. I also provide compilation and review services. I lead the Tax Committee and am a member of the Information Technology Advisory Committee.

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