Are You In Good Standing?

This is a special year for non-profit organizations. It's been all over the general news not just tax blogs. The Pension Protection Act of 2006 mandates that all non-profits, except churches and church related organizations, must file an informational return annually. If they don't file for 3 years their tax exempt status is automatically revoked. Having worked with a non-profit to get their status back, this is not something you want to happen.

It also raises the question, if you are not compliant with the IRS are you compliant with your state? (I'll explain the process in KS, there might be differences in your state.) When a business in Kansas incorporates, they register with the KS Secretary of State. Partnerships and LLCs are also required to register. Once a year, they submit an Annual Report and filing fee to say that they are still in business. The list of registered business and their status is public information and available online. Helping a client this morning, I accessed a portion of the list and was surprised by the number of entities that were marked "Forfeited - A/R not filed." I am sure many of these are businesses that have closed and few were non-profits. But..

A non-profit that loses their tax-exempt status needs to be in good standing with their state or get in good standing quick. One of the requirements to get your tax-exempt status reinstated is an up-to-date certificate in good standing with their Secretary of State. A non-profit that has lost that through not filing the Annual Report has to apply for reinstatement. And that could cost some money to get since there is an annual filing fee that has to be made up for all years not filed. This makes a bad financial situation worse. While their tax-exempt status is suspended, the organizations can't take donations since those wouldn't be tax exempt to the donor*. If they aren't in good standing with the state, they will also have the expense of catch up their Annual Report filing fees. (Not to mention the preparer fees.)

For most tax-exempt organizations, the due date was May 17th. If you haven't filed your 990 this year, get it done now. The IRS is still accepting the 990N (electronic filing) and will take any returns you need to file. You don't want to lose that status. And check with your Secretary of State on your state status and get that up to date too. Even if you are fine with the IRS, check with your state to see if you are in good standing.

*Reinstatement is not a quick process. When I did it, there was a 5 year look back form that needed all the financial info for those years. And if 990s turnout to be required for any year, those need to be completed also. The IRS will also need processing time. Depending on the organization's recording keeping and time to preparer the returns/forms, reinstatement could take 4 or more months.