Small nonprofits face IRS filing deadline

COEUR d'ALENE - You have a chili cook-off and a spaghetti dinner each year to help raise the $5,000 your small nonprofit desperately needs to continue serving the community.

Imagine your organization suddenly has to pay federal income tax on those funds, and your group can no longer accept tax deductible donations.

That could happen to scores of small Idaho nonprofits at risk of losing their tax-exempt status with the IRS because they haven't filed an annual return or notice for the past three years.

"A lot of small organizations don't think they need to do that, or they don't have someone to do it for them," said Caryl Johnston, director of United Way of Kootenai County.

The IRS has published an online list of the organizations facing possible revocation of their exempt status, http://www.irs.gov/pub/irs-tege/id.pdf.

The list is 50 pages long, and includes many Kootenai County agencies.

There are athletic associations, community groups, art associations, water associations, activity clubs, enthusiast societies and professional associations.

Until three years ago, small nonprofits with tax-exempt status did not have to file anything with the IRS if their annual operating expenses were less than $25,000.

That changed in 2006 with the passage of the Pension Protection Act. The federal legislation includes a requirement that nearly all tax-exempt organizations must file information with the IRS annually. The tax law also requires the IRS to revoke the exempt status of any organization that doesn't file for three years, beginning with 2007.

The IRS is giving non-compliant organizations one last chance to file the required information and preserve their tax exempt status, but time is running out.

The deadline is Friday.

For most, it's as simple as filing an online "e-Postcard" form, and answering questions about their organization.

"What we're recommending is that every nonprofit check the list to see if their organization or any organization they know is on it," said Lynn Hoffman, executive director of the Idaho Nonprofit Center in Boise.

There are plenty of reasons not to throw your group's tax-exempt status away.

A list of the organizations that lose their exempt status will be published online by the IRS in 2011.

A nonprofit that loses its status will have to reapply with the IRS to regain its exempt status and any income received between the revocation date and renewed exemption may be taxable.

Timothy Hunt, a Hayden resident and longtime consultant to nonprofits, said it generally costs an organization at least $2,500 to earn tax-exempt status.

"Most of that goes for consultants who write articles of incorporation, bylaws, and applications for tax-exempt status to the IRS," Hunt said.

In some cases, organizations that lose their exempt status will not need new documents.

"But in other situations they will need to start from scratch since legal documents prepared years ago will not pass IRS muster today, and will not be grandfathered in," Hunt said.

Additional fees are assessed by the IRS that range from $400 to $850, he said.

For information on filing before Friday's deadline, visit www.irs.gov.