Here Today, Gone Tomorrow: A Look at Organizations that May Have Their Tax-Exempt Status Revoked

Abstract

In an effort to keep better track of nonprofit organizations, the Pension Protection Act of 2006 mandated that the more than 714,000 organizations with gross receipts less than $25,000 needed to file the new Form 990-N, also known as the e-Postcard. Any organization that fails to file for three consecutive years will have their tax-exempt status revoked. The three year window closed for most organizations on May 17, 2010 and over 292,000 organizations have not yet complied with the new mandate. This brief highlights the type, size, age, and location of organizations that have not yet filed Form 990-N.

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Introduction

Over 292,000 nonprofit organizations may lose their tax-exempt status in the coming months for failing to file a tax return with the Internal Revenue Service (IRS). In an effort to keep better track of nonprofit organizations, the Pension Protection Act of 2006 mandated that the more than 714,000 organizations with gross receipts of less than $25,000 needed to file the new Form 990-N, also known as the e-Postcard. Previously, these organizations had no reason to contact the IRS on a regular basis as long as revenues were less than $25,000 in gross receipts. Organizations operating on the calendar year (January 1 to December 31) had three years, or until May 17, 2010, to comply with the ruling or risk immediate revocation of their tax-exempt status. To date, just over 196,000, or 28 percent, of these organizations missed their deadline. Another 96,500 organizations have not completed the e-Postcard but their filing deadline is yet to come. Many organizations have filed before their deadline to ensure good standing with the IRS.

While we cannot gauge with certainty how many organizations are actually defunct or simply have not heard about the new requirement, we can provide a snapshot of those organizations that risk losing their tax exempt status. We explore these organizations by type, age, and location and provide some comparisons with organizations that have complied with the new law.

Types of Organizations Not Filing Form 990-N

Human service organizations account for the largest percent of organizations that have not yet filed Form 990-N (29 percent) followed by public and societal benefit organizations (22 percent) and education organizations (15 percent). By delving into these categories a bit deeper, we can pinpoint groups of organizations that are more at risk of losing their exempt status.

• Human services: Recreation and sports clubs, including hobby clubs, country clubs, and amateur sports leagues account for over a quarter of human service nonfilers.
• Other public and societal benefit: Three types of other public and societal benefit organizations account for 65 percent of this group of nonfilers. Fraternal societies, such as Masons and Knights of Columbus, account for 23 percent, and military and veterans’ organizations account for another 22 percent. Community service clubs like Elks, Kiwanis, and Junior League account for 20 percent of the nonfilers.
• Education: Student sororities and fraternities account for 30 percent of education nonfilers. Parent and teacher groups, literacy organizations, homework hotlines, and after-school programs represent another 21 percent of the education organizations.

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