A different sort of tax return deadline is fast approaching: Nonprofit groups claiming tax-exempt status have until May 15, 2014, to file returns for the 2013 tax year. Here are the answers to several common questions on this issue.
Q: Does every organization have to file a return?
A: No. There are certain exemptions in the law. For example, the following nonprofits are exempt from the filing requirements:
- Most religious organizations, religious schools and missionary organizations.
- Subsidiaries of nonprofits that may be covered under a group return filed by the parent organization.
- Certain government corporations and state institutions providing essential services.
Q: What form do you have to file?
A: It depends on the size and nature of the organization. Nonprofits with gross receipts of more than $50,000 must file Form 990 or 990-EZ, those with gross receipts that don’t exceed $50,000 file Form 990-N (the “e-Postcard”), and private foundations file Form 990-PF.
Q: What happens if you fail to file?
A: It could result in monetary penalties. Even worse, if an organization fails to file Form 990 three years in a row, the IRS will automatically revoke its tax-exempt status and it can no longer receive tax-deductible contributions. There’s no appeal process for this harsh result.
Q: Are there any other potential taxes?
A: Yes. Significantly, a tax-exempt organization may owe an “unrelated business income tax” (UBIT) for regular business activities unrelated to its charitable function. For example, if a nonprofit charges for advertising in its publications, the income may be subject to UBIT.
If you need more information about nonprofits and taxes, be sure to consult a qualified tax professional.