Nonprofits could lose tax-exempt status
New rules from IRS require annual filing
More than 4,000 Maryland nonprofits face losing their tax-exempt status because they failed to file their financial information during the last three consecutive years.
The Internal Revenue Service used to guarantee lifelong tax exemptions to most nonprofits. Under new regulations, initiated in 2006, the IRS will now revoke exemptions for any organizations excluding religious and state institutions in operation as of January 2007 that have not filed their Form 990 annual return for the last three years in a row. This May marked the first filing deadline that would trigger automatic revocations, although the deadline has since been extended to October.
"We take it very seriously," said Branden McLeod, associate director of the Maryland Budget and Tax Policy Institute, a project of Maryland Nonprofits. "We want nonprofits to thrive; our mission is to strengthen them."
Maryland Nonprofits, a statewide advocacy organization, aims to support the state's 27,000-plus nonprofits. About 16,000 of these had less than $25,000 in receipts in 2009, McLeod said. These groups can file a simpler e-Postcard Form 990-N.
Smaller nonprofits are most in danger because they lack the administrative staff to handle filing. Instead, they must use their staff to provide their core services, he said.
GuideStar, a Virginia organization that tracks nonprofit finances, released a study showing 355,000 national nonprofits facing revocation of their tax status.
But most local nonprofits say if organizations are active and connected to the nonprofit community's vast mailing lists and networking groups, they have already filed their forms.
"The sense is that those 4,000 are the ones that aren't necessarily active," said David Liddle, executive director of Mission of Mercy in Frederick. "If you're a nonprofit and you want to take advantage of the special benefits that come with that, you ought to be in trouble if you don't file. At the end of the day, if you weren't doing it, you should have."
Liz Briscoe, executive director of Action in Maturity in Baltimore, said she is surprised she has not heard of any revocation issues from her network or partners.
"We've received several e-mails about it. People know," she said.
Glen O'Gilvie, CEO of the Center for Nonprofit Advancement in Washington, D.C., agreed that many of the local nonprofits facing revocation may be inactive.
A review of those on the list did not yield many recognizable names, he said.
"The feeling is people get these great ideas and file for the tax exemption and get it. Then they move on," O'Gilvie said. "We perceive [the potential revocations] to be a slim impact."