Help Your Grantees Keep Their Tax Exemption

The Pension Protection Act (PPA) passed in 2006 requires small, tax-exempt organizations with gross receipts of less than $25,000 to file the Form 990-N, or e-postcard, unless they choose to file a complete Form 990 or 990-EZ.  The Form 990-N was created specifically to help these smaller nonprofits streamline their reporting, and the requirement to file the form went into effect for tax years ending on December 31, 2007.  Any organization that fails to file some version of a Form 990 (990-EZ, 990-PF or 990-N) for three consecutive years will have its tax-exempt status revoked and will have to reapply to the IRS for a new exemption.

Automatic revocations will begin in May 2010, and the IRS estimates that up to half a million smaller nonprofit organizations have failed to file a Form 990 to-date and will be in the first wave of revocations.  Many people believe this will result in a beneficial purging of the rolls of organizations that are no longer in business; however, it is not likely that these inactive organizations will total half a million. There is now concern that active but financially unsophisticated nonprofits will be especially vulnerable to this change and may find their legal status at risk.

While the IRS has attempted to inform smaller nonprofits about the 990-N, anecdotal research conducted by the Francis Family Foundation indicates that many of its grantees don’t know whether they have fulfilled this requirement. The Foundation is particularly concerned about grantees of its Small Arts Grant Program, which supports a wide range of grassroots programs to make the arts more accessible in the Kansas City area. It will therefore be including information about Form 990-N in this year’s applications and encouraging applicants to make sure they are in compliance. As with all foundations, the Francis Family Foundation relies upon the success of its nonprofit partners and has a vested interest in their continued operations.

For more information on what you can do for your grantees, read the article that appeared in GuideStar’s January 2009 newsletter (http://ga3.org/ct/s1zVIDS10EkJ/half_a_million_nonprofits) or visit the IRS website for information and filing instructions (www.irs.gov/charities/article/0,,id=169250,00.html).